Feeling energized and vindicated today, thirty (30) years after Judge James Guill and I exposed the injustice of mandatory forced arbitration. Predicting the consequences of the alarming trend, we called for ending forced arbitration in our article in American Bar Association Judges Journal, "A Rush to Unfairness, The Downside to Alternative Dispute Resolution," 28 Judges' Journal 8 (1989).
DELIGHTED that U.S. House of Representatives passed the Forced Arbitration Injustce Repeal Act on September 20, 2019.
From Mankato Free Press:
HOUSE
Right to sue vs. mandatory arbitration
Voting 225 for and 186 against, the House on Sept. 20 passed a bill (HR 1423) that would make mandatory-arbitration clauses unenforceable in federal employment, consumer, antitrust and civil rights disputes. The measure would effectively eliminate from employee-employer agreements as well as from purchase and rental contracts between customers and corporations the increasingly common requirement that aggrieved parties pursue relief through closed mediation rather than openly in court. They still could choose to submit disputes to binding arbitration. This bill could influence the treatment of mandatory arbitration in state courts.
Many employers and companies require mandatory arbitration as a condition of employment or doing business. Employees and customers must agree in advance to relinquish their right to sue and, instead, to allow a mediator typically chosen by the company to settle the dispute. Mandatory arbitration usually limits discovery, precludes appeals, disregards rules of civil procedure and applies permanent secrecy to the proceedings and often to the outcome. Under federal law, arbitration clauses can be used to prohibit customers from filing class-action lawsuits.
Supporters of forced arbitration say it is faster and less expensive than litigation, and especially benefits individuals who cannot afford legal fees. Critics say the process denies the bedrock rights of due process and trial by jury, while enabling employers and corporations to avoid public accountability for wrongdoing.
A yes vote was to send the bill to the Senate.
---------HOUSE JUDICIARY COMMITTEE REPORT:
-----
116th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 116-204
======================================================================
FORCED ARBITRATION INJUSTICE REPEAL ACT
_______
September 13, 2019.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Nadler, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 1423]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 1423) to amend title 9 of the United States Code
with respect to arbitration, having considered the same, report
favorably thereon with an amendment and recommend that the bill
as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 4
Background and Need for the Legislation.......................... 4
Hearings......................................................... 15
Committee Consideration.......................................... 16
Committee Votes.................................................. 16
Committee Oversight Findings..................................... 24
New Budget Authority and Tax Expenditures and Congressional
Budget Office Cost Estimate.................................... 24
Duplication of Federal Programs.................................. 24
Performance Goals and Objectives................................. 24
Advisory on Earmarks............................................. 24
Section-by-Section Analysis...................................... 24
Changes in Existing Law Made by the Bill, as Reported............ 26
Dissenting Views................................................. 29
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Forced Arbitration Injustice Repeal
Act'' or the ``FAIR Act''.
SEC. 2. PURPOSES.
The purposes of this Act are to--
(1) prohibit predispute arbitration agreements that force
arbitration of future employment, consumer, antitrust, or civil
rights disputes, and
(2) prohibit agreements and practices that interfere with the
right of individuals, workers, and small businesses to
participate in a joint, class, or collective action related to
an employment, consumer, antitrust, or civil rights dispute.
SEC. 3. ARBITRATION OF EMPLOYMENT, CONSUMER, ANTITRUST, AND CIVIL
RIGHTS DISPUTES.
(a) In General.--Title 9 of the United States Code is amended by
adding at the end the following:
``CHAPTER 4--ARBITRATION OF EMPLOYMENT, CONSUMER, ANTITRUST, AND CIVIL
RIGHTS DISPUTES
``401. Definitions.
``402. No validity or enforceability.
``Sec. 401. Definitions
``In this chapter--
``(1) the term `antitrust dispute' means a dispute--
``(A) arising from an alleged violation of the
antitrust laws (as defined in subsection (a) of the
first section of the Clayton Act) or State antitrust
laws; and
``(B) in which the plaintiffs seek certification as a
class under rule 23 of the Federal Rules of Civil
Procedure or a comparable rule or provision of State
law;
``(2) the term `civil rights dispute' means a dispute--
``(A) arising from an alleged violation of--
``(i) the Constitution of the United States
or the constitution of a State;
``(ii) any Federal, State, or local law that
prohibits discrimination on the basis of race,
sex, age, gender identity, sexual orientation,
disability, religion, national origin, or any
legally protected status in education,
employment, credit, housing, public
accommodations and facilities, voting, veterans
or servicemembers, health care, or a program
funded or conducted by the Federal Government
or State government, including any law referred
to or described in section 62(e) of the
Internal Revenue Code of 1986, including parts
of such law not explicitly referenced in such
section but that relate to protecting
individuals on any such basis; and
``(B) in which at least 1 party alleging a violation
described in subparagraph (A) is one or more
individuals (or their authorized representative),
including one or more individuals seeking certification
as a class under rule 23 of the Federal Rules of Civil
Procedure or a comparable rule or provision of State
law;
``(3) the term `consumer dispute' means a dispute between--
``(A) one or more individuals who seek or acquire
real or personal property, services (including services
related to digital technology), securities or other
investments, money, or credit for personal, family, or
household purposes including an individual or
individuals who seek certification as a class under
rule 23 of the Federal Rules of Civil Procedure or a
comparable rule or provision of State law; and
``(B)(i) the seller or provider of such property,
services, securities or other investments, money, or
credit; or
``(ii) a third party involved in the selling,
providing of, payment for, receipt or use of
information about, or other relationship to any such
property, services, securities or other investments,
money, or credit;
``(4) the term `employment dispute' means a dispute between
one or more individuals (or their authorized representative)
and a person arising out of or related to the work relationship
or prospective work relationship between them, including a
dispute regarding the terms of or payment for, advertising of,
recruiting for, referring of, arranging for, or discipline or
discharge in connection with, such work, regardless of whether
the individual is or would be classified as an employee or an
independent contractor with respect to such work, and including
a dispute arising under any law referred to or described in
section 62(e) of the Internal Revenue Code of 1986, including
parts of such law not explicitly referenced in such section but
that relate to protecting individuals on any such basis, and
including a dispute in which an individual or individuals seek
certification as a class under rule 23 of the Federal Rules of
Civil Procedure or as a collective action under section 16(b)
of the Fair Labor Standards Act, or a comparable rule or
provision of State law;
``(5) the term `predispute arbitration agreement' means an
agreement to arbitrate a dispute that has not yet arisen at the
time of the making of the agreement; and
``(6) the term `predispute joint-action waiver' means an
agreement, whether or not part of a predispute arbitration
agreement, that would prohibit, or waive the right of, one of
the parties to the agreement to participate in a joint, class,
or collective action in a judicial, arbitral, administrative,
or other forum, concerning a dispute that has not yet arisen at
the time of the making of the agreement.
``Sec. 402. No validity or enforceability
``(a) In General.--Notwithstanding any other provision of this title,
no predispute arbitration agreement or predispute joint-action waiver
shall be valid or enforceable with respect to an employment dispute,
consumer dispute, antitrust dispute, or civil rights dispute.
``(b) Applicability.--
``(1) In general.--An issue as to whether this chapter
applies with respect to a dispute shall be determined under
Federal law. The applicability of this chapter to an agreement
to arbitrate and the validity and enforceability of an
agreement to which this chapter applies shall be determined by
a court, rather than an arbitrator, irrespective of whether the
party resisting arbitration challenges the arbitration
agreement specifically or in conjunction with other terms of
the contract containing such agreement, and irrespective of
whether the agreement purports to delegate such determinations
to an arbitrator.
``(2) Collective bargaining agreements.--Nothing in this
chapter shall apply to any arbitration provision in a contract
between an employer and a labor organization or between labor
organizations, except that no such arbitration provision shall
have the effect of waiving the right of a worker to seek
judicial enforcement of a right arising under a provision of
the Constitution of the United States, a State constitution, or
a Federal or State statute, or public policy arising
therefrom.''.
(b) Technical and Conforming Amendments.--
(1) In general.--Title 9 of the United States Code is
amended--
(A) in section 1 by striking ``of seamen,'' and all
that follows through ``interstate commerce,'' and
inserting in its place ``of individuals, regardless of
whether such individuals are designated as employees or
independent contractors for other purposes'',
(B) in section 2 by inserting ``or as otherwise
provided in chapter 4'' before the period at the end,
(C) in section 208--
(i) in the section heading by striking
``chapter 1; residual application'' and
inserting ``application'', and
(ii) by adding at the end the following:
``This chapter applies to the extent that this
chapter is not in conflict with chapter 4.'',
and
(D) in section 307--
(i) in the section heading by striking
``chapter 1; residual application'' and
inserting ``application'', and
(ii) by adding at the end the following:
``This chapter applies to the extent that this
chapter is not in conflict with chapter 4.''.
(2) Table of sections.--
(A) Chapter 2.--The table of sections of chapter 2 of
title 9, United States Code, is amended by striking the
item relating to section 208 and inserting the
following:
``208. Application.''.
(B) Chapter 3.--The table of sections of chapter 3 of
title 9, United States Code, is amended by striking the
item relating to section 307 and inserting the
following:
``307. Application.''.
(3) Table of chapters.--The table of chapters of title 9,
United States Code, is amended by adding at the end the
following:
``4. Arbitration of employment, consumer, antitrust, and civil rights
disputes''.
SEC. 4. EFFECTIVE DATE.
This Act, and the amendments made by this Act, shall take effect on
the date of enactment of this Act and shall apply with respect to any
dispute or claim that arises or accrues on or after such date.
Purpose and Summary
H.R. 1423, the ``Forced Arbitration Injustice Repeal Act''
or the ``FAIR Act,'' would prohibit the enforcement of
mandatory, pre-dispute arbitration (``forced arbitration'')
provisions in contracts involving consumer, employment,
antitrust, and civil rights disputes. This critically important
measure would restore access to justice for millions of
Americans who are currently locked out of the court system and
are forced to settle their disputes against companies in a
private system of arbitration that often favors the company
over the individual. H.R. 1423 is supported by a broad
coalition of more than 70 public interest, labor, and advocacy
organizations, including Public Citizen, Consumer Reports, the
American Association of Justice, the Communications Workers of
America, the Leadership Conference on Civil Rights, and the
American Antitrust Institute.\1\
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\1\Partners, Fair Arbitration NOW, https://fairarbitrationnow.org/
coalition/ (last visited on Sept. 5, 2019); Letter from Fair
Arbitration Now, Advocacy Coalition, to Reps. David N. Cicilline (D-
RI), Chairman, and F. James Sensenbrenner (R-WI), Ranking Member,
Subcomm. on Antitrust, Commercial & Admin. Law of the H. Comm. on the
Judiciary (May 16, 2019), https://docs.house.gov/meetings/JU/JU05/
20190516/109484/HHRG-116-JU05-20190516-SD009.pdf.
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Background and Need for the Legislation
Over the past several decades, forced arbitration clauses
have become virtually ubiquitous in everyday contracts.\2\
Often buried deep within the fine print of employment and
consumer contracts, forced arbitration deprives millions of
Americans of their day in court to enforce state and federal
rights.\3\ Because arbitration lacks the transparency and
precedential guidance of the justice system, there is no
guarantee that the relevant law will be applied to these
disputes or that fundamental notions of fairness and equity
will be upheld in the process.\4\
---------------------------------------------------------------------------
\2\Jessica Silver-Greenberg & Robert Gebeloff, Arbitration
Everywhere, Stacking Deck of Justice, N.Y. Times (Nov. 1, 2015),
https://nyti.ms/2k6cZ1z (``[B]y inserting individual arbitration
clauses into a soaring number of consumer and employment contracts,
companies . . . devised a way to circumvent the courts and bar people
from joining together in class-action lawsuits, realistically the only
tool citizens have to fight illegal or deceitful business
practices.'').
\3\Consumer Fin. Prot. Bureau, Arbitration Study Rep. to Cong.,
Pursuant to Dodd Frank Wall Street Reform and Consumer Protection Act
1028(a) (2015), http://files.consumerfinance.gov/f/
201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
\4\See, e.g., Myriam Gilles, The Day Doctrine Died: Private
Arbitration and the End of Law, 2016 U. Ill. L. Rev. 371 (2016).
---------------------------------------------------------------------------
Unlike the judicial system--in which courts' decisions are
generally public and, by building on precedent, cumulatively
create a body of law--the results of arbitration disputes are
often secret.\5\ For example, the arbitration protocols for the
American Arbitration Association state that the arbitrators of
consumer disputes must ``maintain the privacy of the hearing to
the extent permitted by applicable law.''\6\ A coalition of
state attorneys general--representing all 50 states, the
District of Columbia, and several U.S. territories--have
similarly noted that, within the context of the application of
forced arbitration to workplace sexual harassment claims, the
``veil of secrecy'' required by arbitration may prevent
similarly situated persons from learning of illegal conduct and
seeking relief,\7\ referring to this phenomenon as a ``culture
of silence that protects perpetrators at the cost of their
victims.''\8\
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\5\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 3-4 (2019) (statement of Gretchen Carlson;
statement of Professor Myriam Gilles, Paul R. Verkuil Chair in Pub.
Law, Benjamin N. Cardozo Sch. of Law, at 10).
\6\Consumer Due Process Protocol, Principle 12.2, Am. Arbitration
Ass'n, https://www.adr.org/sites/default/files/document_repository/
Consumer%20Due%20Process%20Protocol%20(1).pdf.
\7\Letter from Nat'l Ass'n of Att'ys Gen. to Cong. Leadership (Feb.
12, 2018),
http://myfloridalegal.com/webfiles.nsf/WF/HFIS-AVWMYN/$file/
NAAG+letter+to+Congress+Sexual+Harassment+Mandatory+Arbitration.pdf.
\8\Id.
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Forced arbitration also lacks many of the procedural
safeguards of the justice system.\9\ For example, in forced
arbitration, a company may increase the expense of bringing a
claim,\10\ limit discovery,\11\ or eliminate protections
related to the geographic proximity of the resolution
forum,\12\ formal civil procedure rules, access to counsel,\13\
and the right to bring similar claims jointly.\14\ The company
imposing arbitration often selects the presiding arbitrator or
arbitration provider,\15\ creating a conflict of interest in
which the purportedly neutral arbitrator may be motivated by
the prospect of obtaining repeat business from the company
rather than focused on fairly assessing the claim.\16\
---------------------------------------------------------------------------
\9\Id.
\10\Arbitration clauses may impose high costs on consumers such as
requiring travel to a distant forum or selection of a high-fee
arbitrator, possible expenses which a plaintiff filing in a local court
would not have to incur. See Lisa B. Bingham, Control over Dispute-
System Design and Mandatory Commercial Arbitration, 67 Law & Contemp.
Probs. 221, 234-35 (July 31, 2004).
\11\See Katherine Palm, Note, Arbitration Clauses in Nursing Home
Admission Agreements: Framing the Debate, 14 Elder L.J. 453, 478 n.172
(2006).
\12\See Ziva Branstetter, Nursing Home Policy Challenged, Tulsa
World (Mar. 4, 2002), https://www.tulsaworld.com/archives/nursing-home-
policy-challenged/article_6131212f-481c-59c4-af51-
7c2a188e37f9.html (Oklahoma nursing home's arbitration clause requires
residents to travel to New Mexico at their own expense for arbitration
proceeding).
\13\The lower probability of victory and legal fees may discourage
some attorneys from representing individuals in arbitration
proceedings. See Charles L. Knapp, Taking Contracts Private: The Quiet
Revolution in Contract Law, 71 Fordham L. Rev. 761, 783-84 (2002).
\14\See Jean R. Sternlight, As Mandatory Binding Arbitration Meets
the Class Action, Will the Class Action Survive?, 42 Wm. & Mary L. Rev.
1, 6 (2000).
\15\The major arbitration providers include the American
Arbitration Association and JAMS, which set their own procedures,
contract with agencies and companies to arbitrate future disputes, and
provide arbitrators and panels to hear disputes. Katherine V.W. Stone &
Alexander J.S. Colvin, Econ. Policy Inst., The Arbitration Epidemic:
Mandatory Arbitration Deprives Workers and Consumers of Their Rights 17
(EPI Briefing Paper No. 414, 2015), https://www.epi.org/publication/
the-arbitration-epidemic/.
\16\See Carrie Menkel-Meadow, Do the ``Haves'' Come Out Ahead in
Alternative Judicial Systems?: Repeat Players in ADR, 15 Ohio St. J. on
Disp. Resol. 19, 35-37 (1999).
---------------------------------------------------------------------------
As a result of the decline of enforcement of state and
federal statutory protections, forced arbitration makes it more
likely that corporate harms and abuse will go unchallenged. As
Professor Myriam Gilles of Benjamin N. Cardozo School of Law
testified at the hearing on forced arbitration before the
Judiciary Committee's Subcommittee on Antitrust, Commercial,
and Administrative Law (ACAL), many companies' arbitration
clauses specifically identify federal protections that cannot
be enforced in court, such as rights under the Civil Rights Act
of 1964 and the Family Medical Leave Act.\17\ In this respect,
as Professor Gilles observes, ``forced arbitration is not an
alternative regime for resolving claims, it is a means of
suppressing legal claims altogether.'' \18\ Judge William G.
Young, who was appointed by President Ronald Reagan, likewise
stated that the proliferation of forced arbitration clauses
means that ``business has a good chance of opting out of the
legal system altogether and misbehaving without reproach.''
\19\ Deepak Gupta, a leading public interest attorney,
similarly testified that forced arbitration has undermined the
enforcement of statutory rights.\20\ He explained:
---------------------------------------------------------------------------
\17\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 7 (2019) (statement of Myriam Gilles, Paul R.
Verkuil Chair in Pub. Law, Benjamin N. Cardozo Sch. of Law).
\18\Arbitration in America: Hearing Before the S. Comm. on the
Judiciary, 116th Cong. 1 (2019) (Responses to Questions for the Record
of Professor Myriam Gilles, Paul R. Verkuil Chair in Pub. Law, Benjamin
N. Cardozo Sch. of Law).
\19\Jessica Silver-Greenberg & Robert Gebeloff, Arbitration
Everywhere, Stacking Deck of Justice, N.Y. Times (Oct. 31, 2015),
https://nyti.ms/2k6cZ1z (``[B]y inserting individual arbitration
clauses into a soaring number of consumer and employment contracts,
companies . . . devised a way to circumvent the courts and bar people
from joining together in class-action lawsuits, realistically the only
tool citizens have to fight illegal or deceitful business
practices.'').
\20\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 2 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
As the U.S. Supreme Court has itself acknowledged,
the presence of a forced arbitration clause often means
that Americans will have no effective method of
asserting their rights or getting justice under federal
laws that could otherwise have been enforced in a
court--consumer protection or antitrust laws, for
example, or prohibitions on sex or race discrimination.
If Congress passes laws that can't be enforced in the
real world, what good are those laws? \21\
---------------------------------------------------------------------------
\21\Id.
Although proponents of arbitration claim that it decreases
litigation costs for consumers, consumers often do not receive
any benefit of reduced costs through forced arbitration.\22\
Instead, arbitration clauses appear to dissuade consumers from
adjudicating disputes altogether.\23\ Moreover, the lower
probability of victory, and meager legal fees associated with
forced arbitration may also discourage attorneys from
representing individuals in arbitration proceedings.\24\ As
Justice Stephen G. Breyer explained:
---------------------------------------------------------------------------
\22\Consumer Fin. Prot. Bureau, Arbitration Study Rep. to Cong.,
Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act
1028(a), at 10 (2015), http://files.consumerfinance.gov/f/
201503_cfpb_arbitration-study-report-to-congress-2015.pdf (``Using two
measures of credit offered, we did not find any statistically
significant evidence that companies that eliminated arbitration
provisions reduced the credit they offered.'').
\23\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 3 4 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\24\See Charles L. Knapp, Taking Contracts Private: The Quiet
Revolution in Contract Law, 71 Fordham L. Rev. 761, 783 84 (2002).
What rational lawyer would have signed on to
represent the [plaintiffs] in litigation for the
possibility of fees stemming from a $30.22 claim . . .
? The realistic alternative to a class action is not 17
million individual suits, but zero individual suits, as
only a lunatic or a fanatic sues for $30.\25\
---------------------------------------------------------------------------
\25\AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 365 (2011)
(Breyer, J. dissenting).
Supporters of forced arbitration also argue that doing away
with it would lead to more class action lawsuits, the costs of
which would ultimately be borne by consumers.\26\ For example,
Alan Kaplinsky, a senior prtner and Practice Leader at the
Consumer Financial Services Group at Ballard Spahr LLP, who
testified before the Senate Judiciary Committee on April 2,
2019,\27\ cited a study by the Consumer Financial Protection
Bureau estimating that a proposed rule limiting arbitration
clauses would cost financial services providers between $2.62
and $5.23 billion over a five-year period.\28\ Professor
Gilles, however, rejected this concern, noting that large
companies that do not use forced arbitration in their consumer
contracts such as Capital One and Bank of America have not
experienced significant upticks in litigation.\29\ Furthermore,
businesses concerned with additional liability risk could
address this concern by adhering to state and federal law.
---------------------------------------------------------------------------
\26\Alan S. Kaplinsky & Mark J. Levin, The CFPB's Final Arbitration
Rule Run Amok, THE REG. REV. (Sep. 11, 2017), https://
www.theregreview.org/2017/09/11/kaplinsky-levin-cfpb-arbitration-rule/
siness/dealbook/in-arbitration-a-privatization-of-the-justice-
system.html.
\27\Arbitration in America: Hearing Before the S. Comm on the
Judiciary, 116th Cong. 6 (2019) (statement of Alan S. Kaplinsky,
Partner, Ballard Spahr LLP).
\28\Id. at 4.
\29\ Justice Denied: Forced Arbitration and the Erosion of our
Legal System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 11 n.59 (2019) (statement of Professor Myriam
Gilles, Paul R. Verkuil Chair in Pub. Law, Benjamin N. Cardozo Sch. of
Law).
---------------------------------------------------------------------------
In sum, forced arbitration has transferred the rights of
workers and consumers to a secretive, closed, and private
system designed by corporate interests to evade oversight and
accountability.\30\ Unsurprisingly, 84% of Americans across the
political spectrum support ending forced arbitration in
employment and consumer disputes.\31\
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\30\Jessica Silver-Greenberg & Robert Gebeloff, In Arbitration, `A
Privatization of the Justice System,' N.Y. Times (Nov. 1, 2015),
https://www.nytimes.com/2015/11/02/business/dealbook/in-arbitration-a-
privatization-of-the-justice-system.html.
\31\See Guy Molyneux & Geoff Garin, National Survey on Required
Arbitration, Hart Research Assocs. (Feb. 28, 2019), https://
www.justice.org/sites/default/files/2.28.19%20Hart%20poll%20memo.pdf.
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RECENT CASE LAW IGNORES THE LEGISLATIVE INTENT OF THE FEDERAL
ARBITRATION ACT
On February 12, 1925, Congress codified the use of
arbitration through the Federal Arbitration Act (FAA).\32\ The
FAA was adopted to put arbitration agreements on equal footing
with other contracts in certain disputes.\33\ The legislative
history of the FAA suggests that the law was intended to
narrowly apply to disputes between merchants, not between a
business and its consumers or workers.\34\ In 1967, the Supreme
Court characterized the FAA as ``plainly designed'' to include
protections against ``captive customers or employees.''\35\ The
Court noted that it was clear from congressional debate on the
Act that Congress did not intend for parties with unequal
bargaining power to be forced to arbitrate claims on a ``take-
it-or-leave-it basis'':
---------------------------------------------------------------------------
\32\Pub. L. No. 68-401, 43 Stat. 883 (1925) (codified at 9 U.S.C.
Sec. Sec. 1-16 (2019)).
\33\H.R. Rep. No. 68-96, at 1 (1924) (``The purpose of this bill is
to make valid and enforcible [sic] agreements for arbitration . . . in
the Federal courts.'').
\34\See, e.g., H.R. Rep No. 68-96, at 1 (1924); Christopher R.
Leslie, The Arbitration Bootstrap, 94 Tex. L. Rev. 265, 305 (2015)
(``The most important fact about the testimony, hearings, and reports
leading up to congressional enactment of the FAA is that every witness,
every Senator, and every Representative discussed one issue and one
issue only: arbitration of contract disputes between merchants.'').
\35\Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,
414 (1967).
On several occasions [Members of Congress] expressed
opposition to a law which would enforce even a valid
arbitration provision contained in a contract between
parties of unequal bargaining power. Senator Walsh
cited insurance, employment, construction, and shipping
contracts as routinely containing arbitration clauses
and being offered on a take-it-or-leave-it basis to
captive customers or employees. He noted that such
contracts ``are really not voluntarily (sic) things at
all'' because ``there is nothing for the man to do
except to sign it; and then he surrenders his right to
have his case tried by the court.'' He was emphatically
assured by the supporters of the bill that it was not
their intention to cover such cases.\36\
---------------------------------------------------------------------------
\36\Id. (quoting Sales and Contracts to Sell in Interstate and
Foreign Commerce, and Federal Commercial Arbitration: Hearing on S.
4213 and S. 4214 Before the Subcomm. of the S. Comm. on the Judiciary,
67th Cong. 6 (1923) [hereinafter 1923 Hearing on S. 4213 and S. 4214]
(statement of Senator Walsh)).
Furthermore, the Court emphasized that not only was the Act
intended to apply only to merchant disputes, it was also
intended to narrowly apply to ``simpler questions of law''
involving the routine performance of contracts, such as the
passage of title or the existence of warranties.\37\
Arbitration would not be used to resolve questions of statutory
law, which would remain within the clear purview of courts.
---------------------------------------------------------------------------
\37\Prima Paint Corp., 388 U.S. at 415 n.13 (quoting Julius Henry
Cohen & Kenneth Dayton, The New Federal Arbitration Law, 12 VA. L. REV.
265, 281 (1926)).
---------------------------------------------------------------------------
Indeed, the drafters of the FAA had made clear that
arbitration was not appropriate for substantive questions of
law. Julius Henry Cohen, the law's architect, emphasized that
it was ``not the proper method for deciding points of law of
major importance involving constitutional questions or policy
in the application of statutes.''\38\ Arbitration was also
rarely invoked in state courts because it was widely considered
not to preempt state law.\39\ This consensus was supported by
the legislative history of the FAA. During hearings on the
measure, Cohen testified that ``there is no disposition
therefore by means of the Federal bludgeon to force an
individual State into an unwilling submission to arbitration
enforcement.''\40\
---------------------------------------------------------------------------
\38\Andrea Cann Chandrasekher & David Horton, Arbitration Nation:
Data from Four Providers, 107 Cal. L. Rev. 1, 11 n.67 (2019) (quoting
Julius Henry Cohen & Kenneth Dayton, The New Federal Arbitration Law,
12 VA. L. REV. 265, 281 (1926)).
\39\David Horton, The Federal Arbitration Act and Testamentary
Instruments, 90 N.C. L. Rev. 1027, 1039 (2012).
\40\Id. at 1039 n.55 (citing Arbitration of Interstate Commercial
Disputes: Joint Hearings on S. 1005 and H.R. 646 Before the Subcomms.
of the Comms. on the Judiciary, 68th Cong. 40 (1924)).
---------------------------------------------------------------------------
In a series of decisions beginning in the 1980s,\41\
however, the Supreme Court drastically expanded the
applicability of the FAA to arbitration clauses to everyday
contracts, ``push[ing] arbitration into the mainstream.''\42\
The Court has upheld the enforcement of arbitration clauses
even when doing so prevents an individual from vindicating a
state or federal statutory right.\43\ Furthermore, by imposing
arbitration on a ``take-it-or-leave-it'' basis, large companies
have eviscerated the congressional intent of arbitration as a
voluntary process agreed to between parties of equal bargaining
power.\44\
---------------------------------------------------------------------------
\41\See, e.g., Moses H. Cone Mem'l Hosp. v. Mercury Constr., 460
U.S. 1 (1983); Justice Denied: Forced Arbitration and the Erosion of
Our Legal System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before
the Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm.
On the Judiciary, 116th Cong. 25 29 (2019) (statement of Deepak Gupta,
Founding Principal, Gupta Wessler PLLC).
\42\Andrea Cann Chandrasekher & David Horton, Arbitration Nation:
Data from Four Providers, 107 Cal. L. Rev. 1, 12 (2019).
\43\See, e.g., Preston v. Ferrer, 552 U.S. 346, 349 (2008) (``When
parties agree to arbitrate all questions arising under a contract, the
[Federal Arbitration Act] supersedes state laws . . . .''); Allied-
Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995); Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20 (1991).
\44\During the passage of the Federal Arbitration Act, Congress did
not even intend to allow binding arbitration agreements on individuals
if the contracts were between parties of unequal bargaining power.
Prima Paint Corp., 388 U.S. at 414 (1967) (Black, J., dissenting)
(citing 1923 Hearing on S. 4213 and S. 4214).
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With respect to labor unions, the Supreme Court held in
Epic Systems Corp. v. Lewis that the National Labor Relations
Act (NLRA), which guarantees workers the right to organize
unions and utilize collective bargaining, does not reflect a
clearly expressed congressional intent to displace the FAA and
to prohibit class and collective action waivers.\45\ The Court
held that arbitration agreements must be enforced as written
and that ``[w]hile Congress is of course always free to amend
this judgment, we see nothing suggesting it did so in the
NLRA.''\46\ Justice Ginsburg, in a dissent joined by Justices
Breyer, Sotomayor, and Kagan, said the majority was
``egregiously wrong,'' and noted that the decision
``subordinates employee-protective labor legislation to the
Arbitration Act . . . . Congress, when it enacted the NLRA,
likely meant to protect employees'' joining together to engage
in collective litigation.''\47\
---------------------------------------------------------------------------
\45\Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1622-25 (2018).
\46\Id. at 1632.
\47\Id. at 1633, 1641 (Ginsburg, J., dissenting).
---------------------------------------------------------------------------
Forced Arbitration Undermines the Rights of Consumers
Forced arbitration is now widespread in consumer
contracts.\48\ In many cases, consumers are unaware of forced
arbitration clauses in the contracts of commonly used goods and
services.\49\ These clauses are hidden inside of envelopes,\50\
delivery boxes,\51\ and privacy policies.\52\ Because nearly
90% of mobile phone services contain a forced arbitration
clause, it is virtually impossible to avoid them and still use
a mobile phone.\53\ This is also true for many financial
services and products, such as student loans and credit
cards.\54\ As a result, if the consumer wants to use the
service or product, accepting the arbitration clause is
mandatory.\55\
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\48\Justice Denied: Forced Arbitration and the Erosion of Our Legal
System: Hearing On H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 1-2 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\49\ See Wash. Mut. Fin. Grp. v. Bailey, 364 F.3d 260, 264-66 (5th
Cir. 2004) (holding that an arbitration agreement was enforceable
against illiterate consumers, even though they had no knowledge of the
arbitration requirement); Am. Gen. Fin. Servs., Inc. v. Griffin, 327 F.
Supp. 2d 678, 683 (N.D. Miss. 2004) (upholding arbitration agreement
even though blind consumer had no knowledge of agreement); Marsh v.
First USA Bank, N.A., 103 F. Supp. 2d 909, 916-18 (N.D. Tex. 2000)
(finding that inserting an arbitration clause in monthly billing
statements constituted sufficient notice).
\50\See Ting v. AT&T, 319 F.3d 1126, 1134 (9th Cir. 2003).
\51\See Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir.
1997).
\52\See Stephanie Strom, When `Liking' a Brand Online Voids the
Right to Sue, N.Y. Times (Apr. 16, 2014), https://www.nytimes.com/2014/
04/17/business/when-liking-a-brand-online-voids-the-right-to-sue.html.
\53\ Brian Hardingham, The FCC Should Stop Cell Phone Giants from
Using Forced Arbitration Clauses as a Get out of Jail Free Card, Pub.
Justice: Blog (Jan. 13, 2017), https://www.publicjustice.net/fcc-stop-
cell-phone-giants-using-forced-arbitration-clauses-get-jail-free-card/.
\54\Credit Card Practices: Fees, Interest Rates, and Grace Periods:
Hearing Before the Permanent Subcomm. on Investigations of the S. Comm.
on Homeland Sec. and Governmental Affairs, 110th Cong. (2007)
(statement of Alys Cohen, Staff Att'y, Nat'l Consumer Law Ctr.).
\55\Critics of arbitration label it ``mandatory,'' ``compelled,''
or even ``cram down'' arbitration. See, e.g., Carrie Menkel-Meadow, Do
the ``Haves'' Come Out Ahead in Alternative Judicial Systems?: Repeat
Players in ADR, 15 Ohio St. J. on Disp. Resol. 19, 39 (1999).; David S.
Schwartz, Enforcing Small Print to Protect Big Business: Employee and
Consumer Rights Claims in an Age of Compelled Arbitration, 1997 Wis. L.
Rev. 33 (1997); Jean R. Sternlight, Panacea or Corporate Tool?:
Debunking the Supreme Court's Preference for Binding Arbitration, 74
Wash. U. L.Q. 637, 638 (1996).
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In 2015, the Consumer Financial Protection Bureau (CFPB)
released a congressionally-mandated study on forced arbitration
in financial products and services.\56\ The study, which is the
most comprehensive empirical study of arbitration to date,\57\
found ``[n]o evidence of arbitration clauses leading to lower
prices for consumers.''\58\ Instead, the CFPB found that
arbitration has undermined the ability of consumers to seek
redress for abusive, anti-consumer practices.\59\ Richard
Cordray, then-Director of the CFPB, explained that based on
this research, the CFPB had concluded that ``any prospect of
meaningful relief for groups of consumers is effectively
extinguished by forcing them to fight their legal disputes as
lone individuals.''\60\ As he stated, in recent years ``many
businesses have sought to use arbitration clauses not simply as
an alternative means of resolving disputes, but effectively to
insulate themselves from accountability by blocking group
claims,'' exceeding the original purpose of the Federal
Arbitration Act.\61\
---------------------------------------------------------------------------
\56\Consumer Fin. Prot. Bureau, Arbitration Study Rep. to Cong.,
Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act
Sec. 1028(a) (2015), http://files.consumerfinance.gov/f/
201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
\57\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 15 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\58\Consumer Fin. Prot. Bureau, Factsheet, Consumer Financial
Protection Bureau Study Finds That Arbitration Agreements Limit Relief
for Consumers 3 (Mar. 10, 2015), https://files.consumerfinance.gov/f/
201503_cfpb_factsheet_arbitration-study.pdf.
\59\Id. at 2.
\60\Richard Cordray, Dir., Consumer Fin. Prot. Bureau, Remarks at
Field Hearing on Arbitration Clauses (May 5, 2016), https://
www.consumerfinance.gov/about-us/newsroom/prepared-remarks-cfpb-
director-richard-cordray-field-hearing-arbitration-clauses/.
\61\Id.
---------------------------------------------------------------------------
Heidi Shierholz, an economist at the Economic Policy
Institute, notes that ``not only do companies win the
overwhelming majority of claims when consumers are forced into
arbitration--they win big.''\62\ While consumers win nine
percent of their disputes, companies win 93 percent of the
arbitration claims they bring.\63\ Strikingly, in arbitration
involving financial institutions, ``[b]ecause consumers win so
rarely, the average consumer ends up paying financial
institutions in arbitration-a whopping $7,725.''\64\
---------------------------------------------------------------------------
\62\Heidi Shierholz, Econ. Policy Inst., Forced Arbitration is Bad
for Consumers (2017), https://www.epi.org/publication/forced-
arbitration-is-bad-for-consumers/.
\63\Id.
\64\Id.
---------------------------------------------------------------------------
Forced Arbitration Deprives Employees of Fundamental Protections
According to a 2017 report by the Economic Policy
Institute, 60.1 million workers the majority of non-union
employees in the private sector have signed away their rights
through forced arbitration clauses.\65\ As this report notes,
this trend has ``weakened the position of workers whose rights
are violated, barring access to the courts for all types of
legal claims, including those based on Title VII of the Civil
Rights Act, the Americans with Disabilities Act, the Family and
Medical Leave Act, and the Fair Labor Standards Act.''\66\
---------------------------------------------------------------------------
\65\Alexander J.S. Colvin, Econ. Policy Inst., The Growing Use of
Mandatory Arbitration 2 (2017), https://www.epi.org/files/pdf/
135056.pdf.
\66\Id. at 1.
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When employees work under forced arbitration clauses, they
are less likely to win in disputes with their employers,\67\ or
even to bring them at all.\68\ Workers that do enforce their
rights in the workplace receive less in damages in arbitration
than would have been available in court.\69\
---------------------------------------------------------------------------
\67\Id. at 3.
\68\Id. at 5-6.
\69\Id.
---------------------------------------------------------------------------
Worse still, forced arbitration clauses in employment
contracts are often coupled with non-disclosure agreements,\70\
ensuring minimal scrutiny of corporate misconduct. For example,
the claims of hundreds of workers at Sterling Jewelers the
parent company of Jared Jewelers and Kay Jewelers who were
victims of ``groping and sexual coercion and sexual degradation
and rape'' in the workplace over a period of years were forced
into arbitration.\71\ More than 200 women filed statements
describing ``an atmosphere in which female employees endured
unwanted sexual advances from male superiors at the
company.''\72\ These statements from women across the country
alleged, among other egregious forms of abuse and harassment,
that male supervisors coerced their female subordinates into
performing sexual favors for them in order to receive better
jobs or higher pay.\73\
---------------------------------------------------------------------------
\70\Laura Lawless Robertson, Sexual Harassment Claims Put Non-
Disclosure and Arbitration Agreements Under Scrutiny, Resulting in a
Flurry of Legislative Action, Nat'l L. Rev. (Dec. 7, 2017), https://
www.natlawreview.com/article/sexual-harassment-claims-put-non-
disclosure-and-arbitration-agreements-under (``Many employers require
employees to sign [non-disclosure agreements] as a condition of
employment in order to prevent the dissemination and misuse of
companies' confidential and proprietary information.'').
\71\Taffy Brodesser-Akner, The Company that Sells Love to America
Had a Dark Secret, N.Y. Times Mag. (Apr. 23, 2019), https://
www.nytimes.com/2019/04/23/magazine/kay-jewelry-sexual-harassment.html.
\72\Rebecca Hersher, Parent Company of Kay Jewelers Accused of Wage
Discrimination Against Women, NPR: The Two-Way (Mar. 1, 2017), https://
www.npr.org/sections/thetwo-way/2017/03/01/517684117/thousands-allege-
wage-and-promotion-discrimination-by-sterling-jewelers.
\73\Drew Harwell, Hundreds Allege Sex Harassment, Discrimination at
Kay and Jared Jewelry Company, Wash. Post. (Feb. 27, 2017), https://
www.washingtonpost.com/business/economy/hundreds-allege-sex-harassment-
discrimination-at-kay-and-jared-jewelry-company/2017/02/27/8dcc9574-
f6b7-11e6-bf01-d47f8cf9b643_story.html.
---------------------------------------------------------------------------
The claims of these women and nearly 70,000 others who were
part of a class action against Sterling were subject to forced
arbitration,\74\ however, denying their access to justice.
Sterling, like many other American companies, subjects its
employees to forced arbitration, requiring them to waive their
rights to pursue their claims in court, including claims of
discrimination and sexual harassment.\75\ According to a New
York Times investigation, this secretive process minimized the
company's exposure to additional claims or public scrutiny.\76\
As the report explains:
---------------------------------------------------------------------------
\74\Id.
\75\Id.
\76\Taffy Brodesser-Akner, The Company that Sells Love to America
Had a Dark Secret, N.Y. Times Mag. (Apr. 23, 2019), https://
www.nytimes.com/2019/04/23/magazine/kay-jewelry-sexual-harassment.html.
Arbitration meant that instead of being heard in a
public court, they had to proceed privately in
Sterling's in-house system, called Resolve. The first
step of Resolve was an internal investigation. If the
employee wasn't satisfied by the results of that
investigation, he or she could ask to be heard by a
panel of the employee's peers and an employment lawyer,
all selected by Sterling. If the employee was still
dissatisfied, the case was sent to arbitration.
Sterling paid the arbitrator. The hearing's proceedings
were carried out with judicial oversight, but they were
done in private, and their outcome was sealed.
Afterward, if there was a settlement, the employee
often had to sign a nondisclosure agreement that
prohibited the employee from speaking about the case
again. The benefit of arbitration to the employee was
that the claim was usually resolved more speedily. The
benefit to the company was that it was resolved in
secret. The secrecy was the point . . . . [I]n
arbitration, the proceedings are so secretive that the
lawyers weren't allowed to tell other women in the suit
---------------------------------------------------------------------------
what had happened to them.\77\
\77\Id. (emphasis added).
In light of these concerns, a coalition of state attorneys
general--from all 50 states, the District of Columbia, and
several U.S. territories have written Congress in support of
ending forced arbitration in workplace disputes involving
claims of sexual harassment.\78\ As this bipartisan coalition
notes, ``Ending mandatory arbitration of sexual harassment
claims would help to put a stop to the culture of silence that
protects perpetrators at the cost of their victims.''\79\
---------------------------------------------------------------------------
\78\Letter from Nat'l Ass'n of Att'ys Gen. to Cong. Leadership
(Feb. 12, 2018), http://myfloridalegal.com/webfiles.nsf/WF/HFIS-AVWMYN/
$file/
NAAG+letter+to+Congress+Sexual+Harassment+Mandatory+Arbitration.pdf.
\79\Id.
---------------------------------------------------------------------------
Following a series of high-profile disputes involving
sexual and racial harassment, some companies have chosen to
voluntarily limit the use of forced arbitration in employment
contracts. Earlier this year, Google announced that it would no
longer include forced arbitration clauses in its employment
contracts, following a worldwide walkout to protest the
company's handling of sexual harassment claims.\80\
---------------------------------------------------------------------------
\80\Alexia Fernandez Campbell, Why Thousands of Google Employees
Are Protesting Across the World, VOX, (Nov. 1, 2018), https://
www.vox.com/2018/11/1/18051884/google-employee-walkouts-explained;
Nitasha Tiku, Google Ends Forced Arbitration After Employee Protest,
Wired (Feb. 21, 2019), https://www.wired.com/story/google-ends-forced-
arbitration-after-employee-protest/.
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FORCED ARBITRATION DEPRIVES AMERICANS OF THEIR CIVIL RIGHTS
According to an analysis of corporate legal settlements of
civil rights complaints, U.S. corporations have paid more than
$2.7 billion since 2000,\81\ although the cases that reach
settlement may only represent ``the tip of [the] iceberg of
corporate abuses.''\82\ Many victims of civil rights violations
are unable to pursue their claims in court due to forced
arbitration provisions imposed on them as a condition of
employment or for using everyday goods and services.\83\ The
Leadership Conference on Civil and Human Rights, a coalition
representing more than 200 civil rights groups,\84\ explains:
---------------------------------------------------------------------------
\81\Michelle Chen, Corporations Have Paid Out at Least $2.7 Billion
in Civil-Rights and Labor Lawsuits Since 2000, The Nation (Feb. 1,
2019), https://www.thenation.com/article/corporations-lawsuits-civil-
rights/ (citing Philip Mattera, Good Jobs First, Big Business Bias:
Employment Discrimination and Sexual Harassment at Large Corporations,
(2019), https://www.goodjobsfirst.org/sites/default/files/docs/pdfs/
BigBusinessBias.pdf.
\82\Id.
\83\Heidi Shierholz, Econ. Policy Inst, Forced Arbitration is Bad
for Consumers (2017), https://www.epi.org/publication/forced-
arbitration-is-bad-for-consumers/.
\84\Our Common Purpose, Leadership Conf. on Civil & Human Rights
(last visited on Sept. 5, 2019), https://civilrights.org/about/the-
coalition/.
Civil and human rights are especially vulnerable to
the dangerous impact of forced arbitration. Forced
arbitration clauses often preclude consumers and
employees joining together to form a class action to
enforce their civil rights, which results in claim
suppression. Moreover, forced arbitration does not
allow public scrutiny of alleged discrimination, nor
does it allow for the creation of judicial opinions
that help develop the law and provide further guidance
on emerging trends. As a result, landmark civil rights
laws such as those protecting employees from race,
gender, and age discrimination have been rendered
meaningless.\85\
---------------------------------------------------------------------------
\85\Letter from Leadership Conf. on Civil & Human Rights to U.S.
Senators (Feb. 3, 2016), http://civilrightsdocs.info/pdf/Arbitration-
Letter.pdf.
In addition to precluding the enforcement of the civil
rights laws, the opacity of forced arbitration prevents others
from learning of widespread misconduct. As Terri Gerstein, the
Director of the State and Local Enforcement Project at the
Harvard Law School Labor and Worklife Program, noted, the
secretive nature of arbitration ``has allowed outrageous
violations, in some cases years of sexual harassment and
predation, to remain hidden from view and therefore to
continue.''\86\ For example, Massage Envy, the country's
largest massage chain, has forced hundreds of women's
allegations of sexual assault into arbitration.\87\ In one
case, a customer who has alleged that she was sexually
assaulted by one of the company's therapists attempted for over
a year to cancel her monthly membership to Massage Envy, but
was refused unless she agreed to forced arbitration.\88\ As one
sexual assault survivor said, ``I was mortified . . . . It's
just horrifying that they would allow this to happen and then
take steps to cover up what is happening'' through forced
arbitration.\89\ As Gretchen Carlson, an advocate and former
Fox News commentator, noted in her testimony during the ACAL
Subcommittee's hearing on forced arbitration:
---------------------------------------------------------------------------
\86\Terri Gerstein, Forced Arbitration is Unjust and Deeply
Unpopular. Can Congress End It?, Slate (Mar. 1, 2019), https://
slate.com/news-and-politics/2019/03/congress-forced-arbitration-fair-
act.html.
\87\See Brooks Jarosz, Fears Loom that Sexual Assault Cases
Involving Massage Envy Will Remain Private, Fox KVTU (Dec. 21, 2018),
http://www.ktvu.com/news/fears-loom-sexual-assault-cases-involving-
massage-envy-will-remain-private.
\88\Terri Gerstein, Forced Arbitration is Unjust and Deeply
Unpopular. Can Congress End It?, Slate (Mar. 1, 2019), https://
slate.com/news-and-politics/2019/03/congress-forced-arbitration-fair-
act.html.
\89\Brooks Jarosz, Fears Loom that Sexual Assault Cases Involving
Massage Envy Will Remain Private, Fox KVTU (Dec. 21, 2018), http://
www.ktvu.com/news/fears-loom-sexual-assault-cases-involving-massage-
envy-will-remain-private.
These women put their trust into a company and its
employees, only to suffer the trauma of being sexually
assaulted and then continue to suffer as the company
did little to help them and instead tried to silence
them. Now that these women are seeking public
accountability in court, the company is trying to force
them into arbitration, because hidden in the fine print
of the terms and conditions of the company's app and
iPads (used to check in for services) was a forced
arbitration clause.''\90\
---------------------------------------------------------------------------
\90\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 2-3 (2019) (statement of Gretchen Carlson,
advocate and former Fox News commentator).
FORCED ARBITRATION UNDERMINES THE ENFORCEMENT OF THE ANTITRUST LAWS
Forced arbitration clauses have also undermined the
enforcement of the antitrust laws.\91\ As Deepak Gupta noted
during the ACAL Subcommittee's hearing on forced arbitration,
``[t]roublingly, firms that possess monopoly power can enact a
sort of `double punch' by imposing arbitration terms that
insulate their abuse of that same power.''\92\ In 2013, the
Supreme Court dictated this result in American Express Co. v.
Italian Colors Restaurant.\93\ In that case, a small but
successful restaurant in Oakland, California banded with fellow
merchants in a class-action lawsuit to challenge alleged
anticompetitive conduct of American Express, including its
exorbitantly high and hidden fees--as much as 30 percent more
than other card companies.\94\ The small businesses alleged
that American Express's conduct violated Section 1 of the
Sherman Act.\95\ In response, American Express moved to compel
individual arbitration under the Federal Arbitration Act.\96\
---------------------------------------------------------------------------
\91\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 21 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\92\Id. at 20.
\93\Am. Express. Co. v. Italian Colors Rest., 570 U.S. 228, 231
(2013) (holding that the Federal Arbitration Act compels the
enforcement of a contractual waiver of a plaintiff's claim under a
federal statute).
\94\Luke Tsai, Supreme Court Rules Against Oakland Restaurant in
AmEx Suit, East Bay Express (June 25, 2013), https://
www.eastbayexpress.com/WhatTheFork/archives/2013/06/25/supreme-court-
rules-against-oakland-restaurant-in-amex-suit.
\95\Italian Colors Rest., 570 U.S. at 231.
\96\Id.
---------------------------------------------------------------------------
Notwithstanding the establishment of a private right of
action in the Clayton Act, the Court held that the Federal
Arbitration Act required the arbitration of claims under the
antitrust laws.\97\ As the Court noted, the antitrust laws do
not ```evince an intention to preclude a waiver' of class-
action procedure.''\98\ Justice Elena Kagan, in a dissent
joined by Justices Ginsburg and Breyer, warned that the
majority's interpretation of the FAA allows the monopolist ``to
use its monopoly power to insist on a contract effectively
depriving its victims of all legal recourse.''\99\ As she
explained, the Court's decision would have sweeping
ramifications for the vindication of rights established by
statute:
---------------------------------------------------------------------------
\97\Id. at 234.
\98\Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614, 628 (1985)).
\99\Italian Colors Rest., 570 U.S. at 240 (Kagan, J., dissenting).
In the hands of today's majority, arbitration
threatens to become . . . a mechanism easily made to
block the vindication of meritorious federal claims and
insulate wrongdoers from liability. The Court thus
undermines the FAA no less than it does the Sherman Act
and other federal statutes providing rights of
action.\100\
---------------------------------------------------------------------------
\100\Id. at 253.
Critics of the Italian Colors decision similarly note that
it has ``created the possibility that an entity engaging in
monopolistic behavior could encourage and strengthen such
behavior'' by implementing forced arbitration clauses with
merchants.\101\ Now that such clauses are enforceable, entities
engaged in monopolistic behavior can insulate themselves from
virtually any risk of antitrust liability.\102\ As Mr. Gupta
explained at the ACAL Subcommittee's hearing on forced
arbitration, this behavior has two consequences.\103\ First,
antitrust enforcement suffers as a whole due to the decline of
private enforcement.\104\ Second, this decline also results in
a wealth transfer from low-income to high-income individuals in
the absence of open and competitive markets.\105\
---------------------------------------------------------------------------
\101\Robert Ward, Note, Divide & Conquer: How the Supreme Court
Used the Fed. Arbitration Act to Threaten Statutory Rights & the Need
to Codify the Effective Vindication Rule, 39 Seton Hall Legis. J. 149,
162 (2015).
\102\See id.
\103\ Justice Denied: Forced Arbitration and the Erosion of our
Legal System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 21 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\104\ Id.
\105\ Id.
---------------------------------------------------------------------------
Alan Carlson, the owner of the Italian Colors Restaurant
and the lead plaintiff in the case, urged Congress to ``pass
the FAIR Act to restore equal access to justice for small
businesses and consumers.''\106\ As he observed, forced
arbitration ``makes it impossible for businesses to hold large
corporations publicly accountable.''\107\ The FAIR Act, he
concluded, ``would give back to small businesses the right to
go before a judge and jury against big corporations instead of
being locked into a forced arbitration system that is too
expensive to use.''\108\
---------------------------------------------------------------------------
\106\ Justice Denied: Forced Arbitration and the Erosion of our
Legal System: Hearing on H.R. 1423, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 6 (2019) (statement of Alan S. Carlson, Owner,
Italian Colors Rest.).
\107\ Id. at 5.
\108\ Id. at 5-6.
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A coalition of antitrust law professors similarly note that
the FAIR Act is essential to protecting consumers and small
businesses by restoring the private enforcement of the
antitrust laws. They explain:
Billions of dollars are lost by U.S. consumers and
businesses to criminal antitrust conspirators, many of
which are foreign corporations . . . While criminal
enforcement is important for punishing and deterring
antitrust conspiracies, private enforcement provides
virtually the only way to compensate businesses and
consumers that are victims of antitrust violations. . .
. The FAIR Act would protect consumers and small
businesses from being forced into individual, private
arbitration for antitrust disputes. It would help
preserve the strong private enforcement scheme that
Congress established to protect competition and allow
honest businesses to thrive.\109\
---------------------------------------------------------------------------
\109\Letter from Robert H. Lande, Professor, University of
Baltimore School of Law, et al., to Reps. Jerrold Nadler (D-NY), Chair,
& Doug Collins (R-GA), Ranking Member, Comm. on the Judiciary (Sept. 5,
2019) (on file with Majority staff of the H. Comm. on the Judiciary).
The American Antitrust Institute and a coalition of other
public interest organizations add that in the absence of
legislation to end forced arbitration, ``the proliferation of
class action waivers in mandatory arbitration clauses will
destroy a wide swath of the private antitrust rights afforded
to the most vulnerable economic actors in the United
States.''\110\
---------------------------------------------------------------------------
\110\Letter from the American Antitrust Institute, et al., to Reps.
Jerrold Nadler (D-NY), Chair, & Doug Collins (R-GA), Ranking Member, H.
Comm. on the Judiciary (Sept. 6, 2019) (on file with Majority staff of
the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
Hearings
For the purposes of section 103(i) of H. Res. 6 of the
116th Congress, the following hearing was used to develop H.R.
1423: Justice Denied: Forced Arbitration and the Erosion of Our
Legal System, which was held on May 16, 2019 by the Committee's
Subcommittee on Antitrust, Commercial, and Administrative Law.
The hearing examined the rise of forced arbitration in disputes
involving workers, consumers, small businesses, and victims of
civil rights violations, among others, and the effect of forced
arbitration on the vindication of state and federal statutory
rights. The following witnesses testified in support of the
measure: Gretchen Carlson; Professor Myriam Gilles, Professor
of Law, Paul R. Verkuil Chair in Public Law, Benjamin N.
Cardozo School of Law; Deepak Gupta, Founding Principal, Gupta
Wessler PLLC; and Kevin Ziober, Lieutenant, U.S. Navy
Reserves.\111\
---------------------------------------------------------------------------
\111\Justice Denied: Forced Arbitration and the Erosion of our
Legal System: Hearing Before the Subcomm. on Antitrust, Commercial, and
Admin. Law of the H. Comm on the Judiciary, 116th Cong. (2019).
---------------------------------------------------------------------------
Committee Consideration
On September 10, 2019, the Committee met in open session
and ordered the bill, H.R. 1423, favorably reported with an
amendment, by a rollcall vote of 22 to 14, a quorum being
present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following rollcall votes occurred during the Committee's
consideration of H.R. 1423:
1. An amendment by Mr. Jordan of Ohio to strike from the
bill the exemption for collectively bargained agreements was
defeated by a rollcall vote of 15 to 20.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
2. An amendment by Mr. Sensenbrenner of Wisconsin to exempt
from the bill a predispute arbitration agreement and a
predispute joint-action waiver providing certain disclosures
regarding attorneys' fees for the plaintiff's counsel are
submitted to the court was defeated by a rollcall vote of 14 to
20.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
3. An amendment by Mr. Sensenbrenner of Wisconsin to make
the bill applicable to agreements entered into following the
enactment of the bill was defeated by a rollcall vote of 14 to
21.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
4. Motion to report H.R. 1423, as amended, favorably was
agreed to by a rollcall vote of 22 to 14.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures and Congressional Budget
Office Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause (3)(c)(3) of rule XIII of the Rules
of the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee has requested
but not received a cost estimate for this bill from the
Director of Congressional Budget Office. The Committee has
requested but not received from the Director of the
Congressional Budget Office a statement as to whether this bill
contains any new budget authority, spending authority, credit
authority, or an increase or decrease in revenues or tax
expenditures.
Duplication of Federal Programs
No provision of H.R. 1423 establishes or reauthorizes a
program of the federal government known to be duplicative of
another federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
1423 would promote access to justice by prohibiting: (1) the
use of forced arbitration clauses in certain consumer,
employment, antitrust, and civil rights disputes; and (2)
agreements and practices that interfere with the right of
individuals, workers, and small businesses to participate in a
joint, class, or collective action related to an employment,
consumer, antitrust, or civil rights dispute.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 1423 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(d), 9(e), or 9(f) of rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Sec. 1. Short Title. Section 1 sets forth the short title
of the bill as the ``Forced Arbitration Injustice Repeal Act''
or the ``FAIR Act.''
Sec. 2. Purposes. Section 2 states that the purposes of the
FAIR Act are to: (1) prohibit pre-dispute arbitration
agreements that force arbitration of future employment,
consumer, antitrust, or civil rights disputes, and (2) prohibit
practices that interfere with the right of individuals and
small businesses to participate in joint class or collective
action related to an employment, consumer, antitrust, or civil
rights dispute.
Sec. 3. Arbitration of Employment, Consumer, Antitrust, and
Civil Rights Disputes. Section 3(a) amends title 9 of the
United States Code by adding at the end ``Chapter 4--
Arbitration of Employment, Consumer, Antitrust, and Civil
Rights Disputes.''
New Section 401 defines various terms used under new
chapter 4.
The term ``antitrust dispute'' is defined as a dispute
arising from an alleged violation of the antitrust laws, as
defined in the first section the Clayton Act or State antitrust
laws, and in which the plaintiffs seek certification under Rule
23 of the Federal Rules of Civil Procedure or a comparable
state law.
The term ``civil rights dispute'' is defined as a dispute
arising from an alleged violation of the Constitution of the
United States or the constitution of a State or any Federal,
State or local law that prohibits discrimination on the basis
of race, sex, age, gender identity, sexual orientation,
disability, religion, national origin, or any legally protected
status in education, employment, credit, housing, public
accommodations and facilities, voting, veterans or
servicemembers services, health care, or a program funded or
conducted by the Federal Government or a State Government, in
which at least one party is one or more individuals, including
individuals seeking class certification under Federal or State
law.
The term ``consumer dispute'' is defined as a dispute
between (A) one or more individuals who seek or acquire real or
personal property, services . . . securities or other
investments, money, or credit for personal, family, or
household purposes, including individuals seeking class
certification under Federal or State law, and (B) a seller or
provider of such listed services, or a third party involved in
the selling, providing of, payment for, receipt or use of
information about, or other relationship to any such property,
services, securities or other investments, money, or credit.
The term ``employment dispute'' is defined as a dispute
between one or more individuals and a person arising out of or
related to the work relationship or prospective work
relationship, regardless of whether the individual is or would
be classified as an employee or an independent contractor with
respect to such work.
The term ``pre-dispute arbitration agreement'' is defined
as an agreement to arbitrate a dispute that has not yet arisen
at the time of the making the agreement, and the term ``pre-
dispute joint-action waiver'' as an agreement, made before the
dispute has arisen, that would prohibit, or waive the right of,
one of the parties to participate in a joint, class or
collective action concerning the dispute.
New Section 402 first provides that no pre-dispute
arbitration agreement or pre-dispute joint-action waiver shall
be valid or enforceable with respect to an employment dispute,
consumer dispute, antitrust dispute, or civil rights dispute.
It further provides that a court, and not an arbitrator, shall
determine, under federal law, whether this chapter applies to
an agreement to arbitrate, and the enforceability of that
agreement. Section 402 also specifies that this chapter does
not apply to any arbitration provision between an employee and
a labor organization or between labor organizations, except
that no such arbitration provision shall have the effect of
waiving the right of a worker to seek judicial enforcement of a
right arising under a provision of the Constitution of the
United States, a State constitution, or a Federal or State
statute, or public policy arising therefrom.
Section 3(b) makes a number of technical and conforming
amendments to Title 9 U.S.C.
Sec. 4. Effective Date. Section 4 provides that the
legislation takes effect on the date of enactment and applies
to any dispute or claim that arises or accrues on or after the
date of enactment.
Changes in Existing Law Made by the Bill as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, H.R. 1423 as reported, are shown as follows:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
TITLE 9, UNITED STATES CODE
Chap. Sec.
General provisions...............................................1
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards.......................................................201
Inter-American Convention on International Commercial Arbitrati301
Arbitration of employment, consumer, antitrust, and civil rights .
disputes........................................................
CHAPTER 1--GENERAL PROVISIONS
* * * * * * *
Sec. 1. ``Maritime transactions'' and ``Commerce'' defined; exceptions
to operation of title
``Maritime transactions'', as herein defined, means charter
parties, bills of lading of water carriers, agreements relating
to wharfage, supplies furnished vessels or repairs to vessels,
collisions, or any other matters in foreign commerce which, if
the subject of controversy, would be embraced within admiralty
jurisdiction; ``commerce'', as herein defined, means commerce
among the several States or with foreign nations, or in any
Territory of the United States or in the District of Columbia,
or between any such Territory and another, or between any such
Territory and any State or foreign nation, or between the
District of Columbia and any State or Territory or foreign
nation, but nothing herein contained shall apply to contracts
of employment of seamen, railroad employees, or any other class
of workers engaged in foreign or interstate commerce.
Sec. 2. Validity, irrevocability, and enforcement of agreements to
arbitrate
A written provision in any maritime transaction or a contract
evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of such
contract or transaction, or the refusal to perform the whole or
any part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such a
contract, transaction, or refusal, shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract or as otherwise
provided in chapter 4.
* * * * * * *
CHAPTER 2--CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN
ARBITRAL AWARDS
Sec.
201. Enforcement of Convention.
* * * * * * *
[208. Chapter 1; residual application.]
208. Application.
* * * * * * *
Sec. 208. [Chapter 1; residual application] APPLICATION
Chapter 1 applies to actions and proceedings brought under
this chapter to the extent that chapter is not in conflict with
this chapter or the Convention as ratified by the United
States. This chapter applies to the extent that this chapter is
not in conflict with chapter 4.
CHAPTER 3--INTER-AMERICAN CONVENTION ON INTERNATIONAL COMMERCIAL
ARBITRATION
Sec.
301. Enforcement of Convention.
* * * * * * *
[307. Chapter 1; residual application.]
307. Application.
* * * * * * *
Sec. 307. [Chapter 1; residual application] APPLICATION
Chapter 1 applies to actions and proceedings brought under
this chapter to the extent chapter 1 is not in conflict with
this chapter or the Inter-American Convention as ratified by
the United States. This chapter applies to the extent that this
chapter is not in conflict with chapter 4.
CHAPTER 4--ARBITRATION OF EMPLOYMENT, CONSUMER, ANTITRUST, AND CIVIL
RIGHTS DISPUTES
401. Definitions.
402. No validity or enforceability.
Sec. 401. Definitions
In this chapter--
(1) the term ``antitrust dispute'' means a dispute--
(A) arising from an alleged violation of the
antitrust laws (as defined in subsection (a) of
the first section of the Clayton Act) or State
antitrust laws; and
(B) in which the plaintiffs seek
certification as a class under rule 23 of the
Federal Rules of Civil Procedure or a
comparable rule or provision of State law;
(2) the term ``civil rights dispute'' means a
dispute--
(A) arising from an alleged violation of--
(i) the Constitution of the United
States or the constitution of a State;
(ii) any Federal, State, or local law
that prohibits discrimination on the
basis of race, sex, age, gender
identity, sexual orientation,
disability, religion, national origin,
or any legally protected status in
education, employment, credit, housing,
public accommodations and facilities,
voting, veterans or servicemembers,
health care, or a program funded or
conducted by the Federal Government or
State government, including any law
referred to or described in section
62(e) of the Internal Revenue Code of
1986, including parts of such law not
explicitly referenced in such section
but that relate to protecting
individuals on any such basis; and
(B) in which at least 1 party alleging a
violation described in subparagraph (A) is one
or more individuals (or their authorized
representative), including one or more
individuals seeking certification as a class
under rule 23 of the Federal Rules of Civil
Procedure or a comparable rule or provision of
State law;
(3) the term ``consumer dispute'' means a dispute
between--
(A) one or more individuals who seek or
acquire real or personal property, services
(including services related to digital
technology), securities or other investments,
money, or credit for personal, family, or
household purposes including an individual or
individuals who seek certification as a class
under rule 23 of the Federal Rules of Civil
Procedure or a comparable rule or provision of
State law; and
(B)(i) the seller or provider of such
property, services, securities or other
investments, money, or credit; or
(ii) a third party involved in the selling,
providing of, payment for, receipt or use of
information about, or other relationship to any
such property, services, securities or other
investments, money, or credit;
(4) the term ``employment dispute'' means a dispute
between one or more individuals (or their authorized
representative) and a person arising out of or related
to the work relationship or prospective work
relationship between them, including a dispute
regarding the terms of or payment for, advertising of,
recruiting for, referring of, arranging for, or
discipline or discharge in connection with, such work,
regardless of whether the individual is or would be
classified as an employee or an independent contractor
with respect to such work, and including a dispute
arising under any law referred to or described in
section 62(e) of the Internal Revenue Code of 1986,
including parts of such law not explicitly referenced
in such section but that relate to protecting
individuals on any such basis, and including a dispute
in which an individual or individuals seek
certification as a class under rule 23 of the Federal
Rules of Civil Procedure or as a collective action
under section 16(b) of the Fair Labor Standards Act, or
a comparable rule or provision of State law;
(5) the term ``predispute arbitration agreement''
means an agreement to arbitrate a dispute that has not
yet arisen at the time of the making of the agreement;
and
(6) the term ``predispute joint-action waiver'' means
an agreement, whether or not part of a predispute
arbitration agreement, that would prohibit, or waive
the right of, one of the parties to the agreement to
participate in a joint, class, or collective action in
a judicial, arbitral, administrative, or other forum,
concerning a dispute that has not yet arisen at the
time of the making of the agreement.
Sec. 402. No validity or enforceability
(a) In General.--Notwithstanding any other provision of this
title, no predispute arbitration agreement or predispute joint-
action waiver shall be valid or enforceable with respect to an
employment dispute, consumer dispute, antitrust dispute, or
civil rights dispute.
(b) Applicability.--
(1) In general.--An issue as to whether this chapter
applies with respect to a dispute shall be determined
under Federal law. The applicability of this chapter to
an agreement to arbitrate and the validity and
enforceability of an agreement to which this chapter
applies shall be determined by a court, rather than an
arbitrator, irrespective of whether the party resisting
arbitration challenges the arbitration agreement
specifically or in conjunction with other terms of the
contract containing such agreement, and irrespective of
whether the agreement purports to delegate such
determinations to an arbitrator.
(2) Collective bargaining agreements.--Nothing in
this chapter shall apply to any arbitration provision
in a contract between an employer and a labor
organization or between labor organizations, except
that no such arbitration provision shall have the
effect of waiving the right of a worker to seek
judicial enforcement of a right arising under a
provision of the Constitution of the United States, a
State constitution, or a Federal or State statute, or
public policy arising therefrom.
Dissenting Views
I. Introduction
H.R. 1423, the ``Forced Arbitration Injustice Repeal Act,''
introduced by Rep. Hank Johnson, would render unenforceable
provisions in millions of consumer, employment and other
contracts that require, pre-dispute, mandatory binding
arbitration of consumer, employment, civil-rights, or antitrust
disputes between the parties, or that prohibit or waive the
right of one of the parties to the agreement to participate in
judicial, arbitral or administrative class actions. The bill is
the latest iteration of the former ``Arbitration Fairness
Act,'' sponsored by Rep. Johnson in the 110th through the 115th
Congresses. Each of these bills has sought to render
unenforceable consumer and other broad classes of pre-dispute
mandatory binding arbitration contracts, undermining freedom of
contract and leaving those with relevant claims to judicial
class actions or more costly individual judicial proceedings to
resolve their claims. Eschewing the possibility of narrower
reforms that on a bipartisan basis could preserve and improve
the arbitration process for these categories of cases, the bill
would wipe out the availability of arbitration while doing
nothing to curtail the abuse of class actions which gave rise
to increased use of arbitration in the first place.
II. Background
A. GENERALLY
Arbitration is the classic alternative dispute mechanism
available to those wishing not to bring their disputes before
federal or state courts. The Federal Arbitration Act, 9 U.S.C.
Sec. 1 et seq. (FAA), is the principal federal law affecting
arbitration.
The thrust of the law, including federal law, has for some
time been to encourage the use of arbitration and other
alternative dispute resolution mechanisms as speedier, less
expensive and more flexible means of dispute resolution than
litigation. Indeed, in the landmark case of Southland v.
Keating, 465 U.S. 1 (1984), the Supreme Court went so far as to
declare that ``[i]n enacting Sec. 2 of the [Federal
Arbitration] Act, Congress declared a national policy of
favoring arbitration and withdrew the power of the states to
require a judicial forum for the resolution of claims which the
contracting parties agreed to resolve by arbitration.'' Id at
10 (emphasis added)
One would expect the accessibility and relative efficiency
of arbitration to be particularly useful in the realm of
consumer contracts and other smaller-claim disputes. Consumers
and other small claimants, on the one hand, stand to benefit
from this quicker, less cumbersome and less expensive way of
bringing disputes to resolution. Corporate and other
defendants, meanwhile, stand to benefit from these same
advantages, all the more so because consumer and other smaller
claims often are likely to be fairly repetitive and may be
large in number.
The rise of mandatory binding arbitration clauses in
consumer and other contracts in recent years, however, seems to
stem less from these factors than from abuses of a competing,
judicial form of consumer dispute resolution--the class action.
Particularly in response to the actual or perceived abuse of
class action tort cases and class action lending disclosure
suits, and due to the web of inconsistent substantive law and
civil procedure in competing jurisdictions entertaining such
suits, companies began more and more to resort to the use of
pre-dispute, mandatory binding arbitration clauses in their
contracts. In this way, companies sought to introduce a more
orderly, less expensive and more consistent set of rules for
the resolution of their disputes with their customers,
employees and other smaller claimants.
Some consumer, employee and other advocates suggest that
consumers, employees and other small claimants often lack the
sophistication or bargaining power to understand and negotiate
away from contracts containing mandatory binding arbitration
clauses. Thus, they advocate that the use of such clauses
should be curtailed.
The concerns of these advocates, however, do not appear to
be well founded. For example, due in large part to competitive
pressures in intensely competitive sectors, such as the credit
card and auto sales sectors, companies have increasingly
offered consumers enhanced protections in arbitration settings
by offering so-called ``fair clauses.'' In these clauses, the
rules of mandatory binding arbitration are fashioned to prevent
undue advantages to companies. Thus, mandatory binding
arbitration clauses increasingly are crafted to include
provisions that: comply with the consumer ``due process''
procedures of the major arbitrating services; allow either
party to invoke arbitration; provide for the payment of the
difference between court and arbitration fees; allow for fee-
shifting to a losing company; permit requests from indigent
consumers that companies pay the costs of arbitration, win or
lose; and furnish an off-ramp to small claims court for claims
that would qualify for those fora. In addition, consumer
contracts are reported increasingly to include opt-out clauses
that allow consumers, for a time after entering into a contract
(e.g., 45 days), to opt-out of mandatory binding arbitration
clauses while preserving the rest of the bargain represented in
their contract.
B. RECENT SUPREME COURT DECISIONS REINFORCING THE ARBITRATION SYSTEM
The FAA was enacted in 1925, and since then has been
considered by the federal courts in numerous cases. This
includes a recent spate of cases in the Supreme Court,
including at least ten since 2010. The case law in general, and
throughout this recent string of Supreme Court precedents, has
consistently preserved the arbitration system and espoused a
favorable view towards it as a fair and important adjunct to
the judicial system. Decisions from the most recent Supreme
Court decisions, for example, included the following holdings:
Class waivers are enforceable under the FAA
In AT&T Mobility LLC v. Concepcion, 563 U.S. 333,
131 S. Ct. 1740 (2011), the Court held that the FAA bars States
from refusing to enforce arbitration agreements that contain
class action waivers.
In American Express Co. v. Italian Colors
Restaurant, 570 U.S. 228, 133 S. Ct. 2304 (2013), the Court
held that nothing in the Sherman Act overrides the FAA's
protection of the enforceability of class waivers in
arbitration agreements.
In Epic Systems Corp. v. Lewis, 138 S. Ct. 1612
(2018), the Court held that nothing in the National Labor
Relations Act overrides the FAA's protection of the
enforceability of class waivers in arbitration agreements.
Decisions overturning state law restrictions on arbitration agreements
In Kindred Nursing Centers Limited Partnership v.
Clark, 137 S. Ct. 1421 (2017), the Court held preempted by the
FAA a state law rule imposing more stringent requirements for a
power of attorney authorizing the holder of the power of
attorney to enter into an arbitration agreement than state law
required for that holder to enter into other types of
contracts.
In DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463
(2015), the Court held that the FAA preempts a state law
interpretation of the phrase ``law of your state'' to mean
state law without considering the preemptive effect of federal
law, when that interpretation was adopted to invalidate an
arbitration agreement.
In Marmet Health Care Center, Inc. v. Brown, 565
U.S. 530, 132 S. Ct. 1201 (2012), the Court held preempted by
the FAA a state law rule invalidating arbitration agreements
encompassing wrongful death and personal injury claims (in this
specific case, claims against nursing homes).
Decisions relating to class arbitration
In Stolt-Nielsen S. A. v. AnimalFeeds Int'l Corp.,
559 U.S. 662, 130 S. Ct. 1758 (2010), the Court held that an
arbitration agreement cannot be interpreted to require class
arbitration based on the policy preferences of the arbitrator;
rather, the parties must agree to class arbitration.
In Oxford Health Plans LLC v. Sutter, 569 U.S.
564, 133 S. Ct. 2064 (2013), the Court held that an
arbitrator's determination that an agreement authorized class
arbitration could not be set aside under the FAA's standard for
limited judicial review of an arbitrator's decisions.
In Lamps Plus, Inc. v. Varela, 203 L.Ed.2d 636
(2019), the Court held that under the FAA an ambiguous
agreement cannot provide the necessary contractual basis for
concluding that the parties agreed to submit to class
arbitration.
As one can see, the run of holdings in these cases evinces
a vigorous disposition to protect the arbitration system
against unwarranted incursions of various kinds. That being
said, the Court has also not hesitated to hold that claims fall
outside the arbitration system when that result clearly is
required by the FAA. See New Prime, Inc. v. Oliveira (2019)
(unanimous holding that the FAA's exclusion for contracts of
employment of certain transportation industry workers applied
to those employed as independent contractors as well as
ordinary employees).
C. CONSUMER AND EMPLOYMENT ARBITRATION
Consumer arbitration has historically been the main focal
point of the Committee's oversight and legislative activity
concerning arbitration. Employment arbitration, either broadly
or in specific sub-contexts, has also been examined on multiple
occasions.
1. Empirical and Other Evidence on Consumer Arbitration
Empirical and other evidence concerning consumer
arbitration points to the conclusion that the use of mandatory
binding arbitration in consumer settings neither ``denies
justice'' nor ``erodes'' our legal system. On the contrary, it
benefits both consumers and companies, providing effective
legal relief to both consumers and businesses, reducing the
delay, expense and poor recovery performance that litigation--
and particularly class action litigation--tends to yield.
a. The Searle Study--Phase 1
Perhaps the most important empirical evidence to date
concerning consumer arbitration comes from a study published by
Prof. Christopher Drahozal of the University of Kansas School
of Law and the Consumer Arbitration Task Force of the Searle
Civil Justice Institute. This study is entitled ``Consumer
Arbitration Before the American Arbitration Association.'' It
was the first phase of a two-part study performed by the Searle
Institute in the late 2000s.\1\
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\1\A full reproduction of the Phase 1 study is available at https:/
/masonlec.org/site/rte_uploads/files/
Consumer%20Arbitration%20Before%20the%20AAA%20-
%20Preliminary%20Rpt.pdf.
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The Searle study reviewed a sample of American Arbitration
Association case files involving consumer arbitrations; the
primary dataset consisted of 301 AAA consumer arbitrations
closed by award between April and December of 2007. Nearly ten
percent of the cases in the sample concerned credit card
disputes. Roughly 200 variables in the cases were examined by
standard statistical methods; included among the variables were
the characteristics of the arbitration clauses governing the
cases. When complete, the study was both peer-reviewed by
independent academic experts and reviewed by the Searle
Institute's Board of Overseers, which included general counsel,
plaintiffs' lawyers, defense lawyers, academics, and state and
federal judges.
Phase 1 of the Searle study covered the two broadest sets
of issues about credit card and other consumer arbitration: (1)
the expense, speed and results associated with arbitration; and
(2) the degree to which ``Consumer Due Process'' protocols are
met in arbitration.
i. Arbitration expenses
As Prof. Drahozal testified before the Subcommittee in
2009, the Searle study's results support the case for
preserving mandatory binding arbitration in credit card and
other consumer contexts. For example, with respect to costs,
Prof. Drahozal's written testimony stated as follows:
The Searle study found that the fees assessed to consumer
claimants bringing small claims are on average below the levels
specified in the AAA fee schedule, as a result of businesses
agreeing in the arbitration agreement to pay a greater share of
the costs and arbitrators reallocating consumer fees to
businesses in the award. In cases with claims of less than
$10,000, consumer claimants were assessed an average of $96 ($1
administrative fee plus $95 arbitrator fees). In cases with
claims of between $10,000 and $75,000, consumer claimants were
assessed an average of $219 ($15 administrative fees plus $204
arbitrator fees). Thus, the effective fees for consumer
arbitration in these cases were less than indicated in the
applicable arbitration rules, and may have been less than court
filing fees.\2\
---------------------------------------------------------------------------
\2\Statement of Christopher R. Drahozal. House Judiciary Committee
Subcommittee on Commercial and Administrative Law Hearing on the
``Federal Arbitration Act: Is the Credit Card Industry Using the Act to
Slam Shut the Courthouse Door?'' at 3-4 (May 5, 2009).
---------------------------------------------------------------------------
This information rebuts one of the key criticisms of
consumer arbitration, which is that the up-front fees
associated with arbitration are too high, as compared to the
up-front costs of litigation. Obviously, fees at this level are
not prohibitive either up front or in total; moreover, they are
remarkably low compared to the costs of litigation. While it is
true that the Searle study figures included administrative and
arbitrator's fees, not attorney's fees, the latter must be paid
in either arbitration or litigation, and likely mount higher in
litigation.
ii. Procedural fairness
Modern-day arbitration clauses often incorporate procedural
``due process'' protocols, such as the protocol crafted by the
American Arbitration Association. These protocols typically
call for independent, impartial arbitrators; manageable costs;
the provision of fora convenient to consumers; and the
availability of remedies comparable to those that consumers
could obtain in litigation. The due process protocols are taken
quite seriously; AAA, for example, long ago committed to reject
arbitration under arbitration clauses that do not comport with
the AAA's due process protocol.
The Searle study found that 76.6 percent of consumer
arbitration clauses in the sample complied fully with the AAA's
Consumer Due Process Protocol at the time of filing. In
addition, in virtually all cases in which initial non-
compliance was found, the non-compliance was cured following
AAA intervention (for example, through waiver or revision of
the offending clause terms). Finally, the study found that over
1,550 businesses had clauses that comply with the AAA's
protocol, as opposed to only 647 identified businesses for
which the AAA will not take arbitrations on account of protocol
non-compliance. (The most common non-compliance is refusal by a
business to pay its share of arbitration fees.)\3\
---------------------------------------------------------------------------
\3\Id. at 5.
---------------------------------------------------------------------------
iii. Quality of results
The Searle study also examined the degree to which
arbitrations produce sound results for consumers. This has been
a particularly fractious issue in the credit card context,
given some earlier studies suggesting that companies fare
better in arbitration than do consumers.
The Searle researchers, however, found that consumers
received awards in 53.3% of the cases they filed, with average
recoveries of $19,255. That, obviously, is a healthy recovery
rate. The Searle study also found that business claimants won
relief in 83.6% of the cases they filed, with average
recoveries of $20,648. In addition, the study found that, on
average, a successful consumer claimant recovered 52.1% of the
amount he or she claimed, while successful business claimants
recovered a higher average of 93% of the amounts they claimed.
The investigators, however, found a reasonable basis for this
difference, which is that virtually all business claims were
for non-payment, while consumer claims more often sounded in
the areas of non-delivery, breach-of-warranty, or violation of
consumer protection laws. Thus, the overall picture that
emerged was one of an arbitration system that delivered truly
fair and reasonable results for consumers.\4\
---------------------------------------------------------------------------
\4\Id. at 5-6.
---------------------------------------------------------------------------
iv. Repeat-arbitrator bias
The next concern addressed by the Searle study is the so-
called ``repeat-player'' phenomenon in consumer arbitration.
Consumer advocates commonly claim that businesses receive
preferential treatment from arbitrators. Their theory is that,
because businesses tend to generate continuous streams of fee-
paying cases for arbitrators, the arbitrators reciprocate and
grow their fee streams by skewing awards in businesses' favor.
The Searle study, however, like previous studies, found
that any ``repeat-player'' effect that may exist is actually
the result of better case screening by companies who return
again and again to arbitration. Moreover, the study found no
statistically significant evidence of a repeat-player effect
when applying a traditional definition of repeat-player
business (i.e., consumers won relief in 51.8% of cases against
businesses that had repeat appearances in the data set, and
55.3% of cases against businesses that appeared only once). A
very modest repeat-player effect was shown using a different
definition of repeat-player-business, but that was largely the
product of these players' success rates at achieving
settlements, suggesting that the phenomenon was a result of
better case-screening, not arbitrator bias.\5\
---------------------------------------------------------------------------
\5\Id. at 6-7.
---------------------------------------------------------------------------
v. Class Relief
Finally, the Searle study did not find a major problem with
the use of class arbitration waivers in consumer arbitration
clauses. Overall, only 36.5% of cases arose under arbitration
clauses containing class arbitration waivers; the remaining
63.5% did not. In addition, the use of class action waivers
varied significantly by sector; all credit card and cell phone
arbitration clauses included class action waivers, few or none
of the clauses in the mobile home, real estate and insurance
sectors included waivers.
b. The Searle Study--Phase 2
Phase 2 of the Searle study focused on a comparison between
arbitration consumer litigation cases. As a result, the
complete study provided a sound, comparative study of both
arbitration and litigation mechanisms for resolving consumer
disputes.
Following up on his appearance at the Subcommittee's May 5,
2009 hearing, Prof. Drahozal appeared on July 22, 2009, before
the Committee on Oversight and Government Reform's Subcommittee
on Domestic Policy. At that hearing, Prof. Drahozal was able to
discuss preliminary information from Phase 2 of the study. As
Prof. Drahozal put it in that testimony, the Searle study's
results to that date provided a preliminary basis for comparing
arbitration and litigation:
``Despite . . . limitations, the preliminary findings
. . . appear to be inconsistent with the argument that
high win-rates for businesses in debt collection
arbitrations show that arbitration is biased in favor
of those businesses. Instead, the win-rates, while high
in absolute terms and higher than win-rates for claims
brought by consumers in arbitration, appear similar to
win-rates for comparable claims brought in court. Thus,
while the findings are only preliminary, they
nonetheless suggest that business win-rates in debt
collection cases may be due to the types of claims
being brought and not to the forum in which they are
adjudicated.''\6\
\6\Arbitration or Arbitrary: The Misuse of Mandatory Arbitration to
Collect Consumer Debts: Hearing Before the Domestic Policy Subcomm. of
the Oversight & Government Reform Comm., 111th Cong. 1 (2009)
(statement of Christopher R. Drahozal, Professor of Law, University of
Kansas School of Law); see also id at 6-7 (businesses bringing debt
collection cases in sampled federal and state court cases won relief in
99.7% of cases going to judgment).
When the findings of the Searle Phase 2 study were
published in November 2009, they reaffirmed these conclusions
Central findings included that:
``[c]reditors won some relief in the court
cases studied as often, or more often, than in the
arbitration cases studied (i.e., consumers prevailed
more often in arbitration than in court);''
``[p]revailing creditors were awarded as
high a percentage, or a higher percentage, of what they
sought in the court cases studied than in the
arbitration cases studied (i.e., consumers fared better
or at least no worse by this measure in arbitration
than in court);''
``[t]he 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;''
``[t]he rate at which consumers responded
(i.e., did not default) also did not appear to differ
systematically between arbitration and litigation;''
and
``[a]s a general matter, in the cases we
studied, consumers fared at least as well in
arbitration as in court.''\7\
---------------------------------------------------------------------------
\7\Consumer Arbitration Task Force, Searle Civil Justice Institute,
Creditor Claims in Arbitration and in Court: Interim Report No. 1 at 4,
27 (Nov. 2009) (emphasis added) (available at https://masonlec.org/
site/rte_uploads/files/
Creditor%20Claims%20Interim%20Report%2011%2019%2009%20FINAL.pdf).
---------------------------------------------------------------------------
To conclude, the two-phase Searle Study provided
substantial evidence that consumer arbitration, is cheap, fair,
effective, untainted by pro-business bias, and generally used
without unfair restrictions on class action arbitration.
c. The Consumer Financial Protection Bureau study
Subsequent to the Searle study, the Dodd-Frank Wall Street
Reform and Consumer Protection Act, Pub. L. 111-203, required
the newly constituted Consumer Financial Protection Bureau to
perform a study of consumer arbitration and offer
recommendations concerning to Congress. Perhaps most
significantly, the CFPB's study identified facts about class-
action lawsuits that casts severe doubt over whether class-
action lawsuits will be capable of providing adequate justice
to consumer claimants, if those claimants are denied the
alternative of arbitration. For example, the CFPB study found
that:
the substantial majority of class actions
are resolved with no benefits flowing to absent class
members;\8\
---------------------------------------------------------------------------
\8\See Consumer Financial Protection Bureau, Arbitration Study:
Report to Congress 2015 at Section 6, p. 37 (Mar. 2015) (CFPB Report)
(available at https://files.consumerfinance.gov/f/
201503_cfpb_arbitration-study-report-to-congress-2015.pdf).
---------------------------------------------------------------------------
the weighted-average claims rate was only
four percent--i.e., the vast majority of class members
do not file claims for payment from class-action
settlement funds;\9\
---------------------------------------------------------------------------
\9\See id. at Section 8, p. 30.
---------------------------------------------------------------------------
the average settlement payment to class
members was just $32.35, while attorneys' fees averaged
$1 million per case;\10\
---------------------------------------------------------------------------
\10\See id. at Section 8, pp. 27-28.
---------------------------------------------------------------------------
the average fee paid to class-action
plaintiffs' lawyers, as a percentage of the announced
settlement, was 41%, with a median of 46%;\11\ and
---------------------------------------------------------------------------
\11\See id. at Section 8, p. 34.
---------------------------------------------------------------------------
class actions that produced class-wide
settlements took an average of nearly two years to
resolve.\12\
---------------------------------------------------------------------------
\12\See id. at Section 8, p. 37.
---------------------------------------------------------------------------
d. Earlier studies of consumer arbitration
Studies that preceded the Searle and CFPB studies also
support conclusions favorable to arbitration. For example,
during the 2000s, the National Arbitration Forum published a
synopsis of independent studies and surveys concerning the
benefits of pre-dispute consumer arbitration. The results of
these studies, as concerns consumer interests, can be
summarized as follows:
individuals prevailed more often in
arbitration than in court;
consumers, more specifically, prevailed 20%
more often in arbitration than in court;
monetary relief for individuals was higher
in arbitration than in lawsuits;
individuals received a greater percentage of
the relief requested in arbitration;
arbitration was approximately 36% faster
than litigation;
sixty-four percent of American consumers
would choose arbitration over a lawsuit for monetary
damages; and
ninety-three percent of consumers using
arbitration found it to be fair.\13\
---------------------------------------------------------------------------
\13\National Arbitration Forum, The Case for Pre-Dispute
Arbitration Agreements: Effective and Affordable Access to Justice for
Consumers, Empirical Studies & Survey Results (2004).
---------------------------------------------------------------------------
The results of these studies for business were similarly
positive. For example, 78% of business attorneys found that
arbitration provided faster recovery than lawsuits, and 83% of
business attorneys found arbitration to be equally as fair or
more fair than lawsuits.
Separately, in December 2004, Ernst & Young issued a more
targeted study of the outcomes of contractual arbitration in
consumer-initiated, lending-related cases. The results of this
study were as follows:
consumers prevailed in 55% of cases that
went to an arbitration hearing--the same win-rate that
consumers obtained in state court;
consumers obtained favorable results in 79%
of the cases that were reviewed;
40% of consumers who brought arbitration
claims actually got their ``day in court,'' while only
2.8% of cases in state court ever reached trial; and
69% of consumers surveyed indicated that
they were very satisfied with the arbitration
process.\14\
---------------------------------------------------------------------------
\14\Ernst & Young, Outcomes of Arbitration. An Empirical Study of
Consumer Lending Cases (2004).
---------------------------------------------------------------------------
In April 2005, Harris Interactive released the results of
an extensive survey of arbitration participants sponsored by
the U.S. Chamber of Commerce's Institute for Legal Reform. The
survey was conducted online among 609 adults who participated
in a binding arbitration case (voluntarily, due to contract
language or with strong urging by the Court, but not a court
order) that reached a decision. The major findings were that:
arbitration was widely seen as faster (74%),
simpler (63%), and cheaper (51%) than going to court;
two-thirds (66%) of participants say they
would be likely to use arbitration again with nearly
half (48%) saying they are extremely likely;
even among those who lost, one-third said
they were at least somewhat likely to use arbitration
again;
most participants were very satisfied with
the arbitrator's performance, the confidentiality of
the process and its length;
predictably, winners found the process and
outcome very fair and losers found the outcome much
less fair. However, 40% of those who lost were
moderately to highly satisfied with the fairness of the
process and 21% were moderately to highly satisfied
with the outcome;
while one in five of the participants were
required by contract to go to arbitration, the
remainder were voluntary--suggested by one of the
parties, one of the lawyers, or the court; and
two-thirds of the participants were
represented by lawyers.\15\
---------------------------------------------------------------------------
\15\U.S. Chamber Institute for Legal Reform, Arbitration: Simpler,
Cheaper, and Faster than Litigation--a Harris Interactive Survey (2005)
(available at https://www.instituteforlegalreform.com/uploads/sites/1/
ArbitrationStudyFinal.pdf).
---------------------------------------------------------------------------
Other studies have also reached results supporting the
conclusion that arbitration provides a fair and effective
option for consumers and others arbitrating against businesses,
such as employees. For example, RoperASW published a study of
legal disputes in April 2009 concluding that 64% of individuals
would choose arbitration over court litigation, 67% believed
court litigation takes too long, and 32% believed court
litigation costs too much. Likewise, a report on consumer and
employee arbitration in California found that consumers
prevailed 71% of the time in arbitration.\16\
---------------------------------------------------------------------------
\16\See California Dispute Resolution Institute, Consumer and
Employment Arbitration in California: A Review of Website Data Posted
Pursuant to Section 1281.96 of the Code of Civil Procedure (August
2004) (available at http://www.mediate.com/cdri/cdri_print_Aug_6.pdf).
---------------------------------------------------------------------------
e. Problems in National Arbitration Forum arbitration
On July 14, 2009, the Minnesota Attorney General sued the
National Arbitration Forum (NAF) for a number of alleged
infractions related to consumer debt arbitration. Allegations
levied against the Forum included that NAF had, among other
things:
deceptively represented that it was
independent and neutral, operated like an impartial
court system, and was not affiliated with any party;
paid commissions to executives to convince
creditors to include mandatory arbitration clauses in
customer agreements and use the NAF as their
arbitrator;
aligned itself with creditors and against
consumer interests in its behind-the-scenes
communications with creditors;
constructed financial ties between the NAF
and the debt collection industry through a web of
relationships with hedge funds and debt collection law
firms (according to the lawsuit, of the 214,000
consumer collection arbitration claims processed in
2006 by the NAF, 125,000 were filed by these law
firms);
``deselected'' from eligibility for future
cases arbitrators who had ruled for consumers, not
awarded credit card companies attorneys' fees, or
required creditors to introduce evidence; and
sought out arbitrators were ``anti-
consumer.''
On July 17, 2009, the NAF signed a consent judgment
resolving the lawsuit. Pursuant to that judgment, the NAF
withdrew from its consumer arbitration business lines,
including arbitration of credit card debt, consumer loan,
telecommunications, utilities, health care, and consumer lease
claims.
Anti-arbitration advocates pointed to the NAF affair as
evidence that consumer arbitration should be broadly restricted
The NAF, however, disputed the argument, claiming that it
withdrew from consumer arbitration primarily because it: (1)
lacked sufficient resources to defend against the increasing
challenges to arbitration, including from state attorneys
general and the organized plaintiffs' trial bar; and (2) faced
increased legislative uncertainty about the future of the
arbitration system.
The allegations against the NAF were disturbing. To date,
however, there is no evidence that other prominent arbitration
providers, such as the American Arbitration Association and
JAMS, have been involved in similar practices or relationships.
Accordingly, the most important point to be drawn from the NAF
experience is not that mandatory binding arbitration in and of
itself is deeply or inherently flawed. Rather, it is that the
arbitration sector and the arbitration provider that generated
the most complaints about mandatory binding arbitration--
consumer debt collection arbitration and the NAF--were cleaned
up.
f. AAA moratorium on consumer debt collection arbitration and
subsequent consumer and employment arbitration due-process
protocols
i. Moratorium on consumer debt collection arbitration
In a related development, in June 2009, the American
Arbitration Association (AAA) entered into a self-imposed
moratorium on the arbitration of consumer debt collection
cases. The AAA ascribed the moratorium to its desire to review
and address fairness and due process concerns in the area of
consumer debt collection arbitration.
Significantly, the AAA placed no moratorium on its
arbitration of any other kind of dispute. According to the AAA,
that was because its decades-long experience in consumer
arbitration showed that arbitration presents a good alternative
for the resolution of consumer-related disputes.\17\ Consistent
with this conclusion, the Searle Study highlighted that the
AAA's ``landmark Consumer Due Process Protocol,'' created more
than ten years ago with ``input from consumer, government,
legal, business and academic experts . . . drawn from such
organizations as the AARP, Consumers Union, Consumer Action,
American Council on Consumer Interests, the Federal Trade
Commission, the National Association of Attorneys General, and
the National Association of Consumer Agency Administrators,''
works well to protect consumers.\18\ In fact, the Searle Study
concluded that ``the AAA vigorously enforces the Protocol in
each case, and that consumers win a majority of claims that
they bring in arbitration before the AAA.''\19\
---------------------------------------------------------------------------
\17\Arbitration or Arbitrary: The Misuse of Mandatory Arbitration
to Collect Consumer Debts: Hearing Before the Domestic Policy Subcomm.
of the Oversight & Government Reform Comm. at 8, 111th Cong. 8 (2009)
(statement of Richard W. Naimark, Senior Vice President, American
Arbitration Association).
\18\Phase 1 Searle Study at 90.
\19\Id.
---------------------------------------------------------------------------
In light of the above, in 2009 the AAA endorsed the view
that the NAF scandal presented a sui generis set of
circumstances that did not support calls for broad reform of
the arbitration system. The AAA, however, did call for reform
of debt collection arbitration and a national policy committee
to explore and identify solutions in that area.
ii. Current AAA consumer and employment arbitration due
process protocols
Currently, the AAA has protocols in place for both consumer
and employment arbitration to ensure the fairness of consumer
arbitrations and employment arbitrations. The provisions of
these protocols include the following:
Key Consumer Rules provisions:
Either party may take a claim to small claims
court in lieu of arbitration.
A business using the AAA as an arbitral forum for
consumer disputes must provide a copy of its contract to the
AAA so that the AAA may review it for compliance with its rules
and so that the contract may be publicly posted. The AAA will
not provide a forum for arbitration of disputes unless the
business has first complied with this requirement and the AAA
has determined that the contract complies with AAA rules.
In the absence of agreement by the parties on an
arbitrator, the AAA will appoint the arbitrator.
The arbitrator, as well as the parties and their
representatives, must provide information to the AAA of any
circumstances likely to raise justifiable doubt as to whether
the arbitrator can remain impartial or independent.
The AAA will disqualify an arbitrator who shows
lack of independence, or partiality, or inability to perform
the duties of an arbitrator.
The arbitrator may require pre-hearing exchanges
of information and identification of witnesses and exhibits, as
well as other exchanges of information if needed to provide for
a fundamentally fair process.
Parties may be represented by counsel.
The arbitral hearing may be by telephone, in
person or based on submitted documents.
The arbitrator's decision ``shall provide the
concise written reasons for the decision unless the parties all
agree otherwise.''
Consumer's fees are capped at $200 if the consumer
initiates a case and at $0 if the business initiates the
case.\20\
---------------------------------------------------------------------------
\20\American Arbitration Association, Consumer Arbitration Rules
(2018) (available at https://www.adr.org/sites/default/files/
Consumer_Rules_Web_0.pdf).
---------------------------------------------------------------------------
Key Employment Rules provisions:
If the parties have not agreed on an arbitrator,
the AAA will send both sides the same list of arbitrator
candidates, so that each party can strike names and rank the
remaining names. The AAA will then select the arbitrator from
the unstricken names based on the ranking. If the parties'
submissions do not permit this process, the AAA may select the
arbitrator from among other eligible arbitrators.
``Any person appointed or to be appointed as an
arbitrator shall disclose to the AAA any circumstance likely to
give rise to justifiable doubt as to the arbitrator's
impartiality or independence, including any bias or any
financial or personal interest in the result of the arbitration
or any past or present relationship with the parties or their
representatives.''
``The arbitrator shall have the authority to order
such discovery, by way of deposition, interrogatory, document
production, or otherwise, as the arbitrator considers necessary
to a full and fair exploration of the issues in dispute,
consistent with the expedited nature of arbitration.''
The AAA will disqualify an arbitrator who shows
lack of independence, partiality or inability to perform the
duties of an arbitrator.
Parties may be represented by counsel.
Parties may waive an oral hearing.
The award must be in writing, shall be signed by a
majority of the arbitrators and shall provide the written
reasons for the award unless the parties agree otherwise.
Employee's fees are capped at $300 for claims
filed by the employee, and employers pay all fees for claims
filed by the employer.\21\
---------------------------------------------------------------------------
\21\American Arbitration Association, Employment Arbitration Rules
and Mediation Procedures (2017) (available at (https://www.adr.org/
sites/default/files/Employment Rules_Web2119.pdf).
---------------------------------------------------------------------------
g. Other studies and issues concerning credit card arbitration
i. Public Citizen study
In addition to the above studies, there are a number of
analyses bearing more specifically on credit card arbitration.
This type of arbitration has long been at the core of concerns
over consumer arbitration.
The first of the credit card studies was published in 2007
by Public Citizen; it is entitled The Arbitration Trap: How
Credit Card Companies Ensnare Consumers (available at http://
www.citizen.org/documents/ArbitrationTrap.pdf). Relying on
disclosures by the National Arbitration Forum concerning its
consumer arbitrations in California, Public Citizen assessed
the results of 33,948 arbitrations from 2003 to 2007. The vast
majority of these cases were credit card cases, virtually all
of them were brought by businesses against consumers. According
to the study, about 43% of these cases settled or were
dismissed before an arbitrator could be appointed. In those
cases in which an arbitrator was appointed, businesses won
almost 94% of the time. In the very few consumer-filed cases in
the sample, businesses won over 60 percent of the time. The
sample size, however, was too small to provide any reliable
inferences. On the basis of these results, Public Citizen
advocated strenuously during the 2000s that consumer
arbitration, and particularly credit card arbitration, was
unfair to consumers.
ii. Navigant study
In 2008, Navigant Consulting reexamined the data on which
Public Citizen relied, in a study entitled National Arbitration
Forum: California Consumer Arbitration Data (July 11, 2008)
(available at http://www.instituteforlegalreform.com/issues/
docload.cfm?docId=1212). Navigant reported that, in the 26,665
arbitrations that did not settle, ``consumer parties were
reported to have prevailed outright or had the case against
them dismissed in 8,558 cases (32.1%),'' ``claims against
consumers were reduced by NAF in an additional 4,376 cases
(16.4%),'' ``the median reduction was $636 and the median
percentage reduction was 8.6%,'' the consumers had to pay
arbitration fees in virtually none of the cases in which
arbitration fees were paid, and, in the few cases in which
consumers paid the fees, the media fee paid was $75. Clearly,
this information revealed a much different picture of the cases
that Public Citizen examined.\22\
---------------------------------------------------------------------------
\22\Navigant Consulting, Memorandum--National Arbitration Forum:
California Consumer Arbitration Data (2008).
---------------------------------------------------------------------------
In addition to Navigant, Professor Peter Rutledge of the
University of Georgia School of Law criticized the Public
Citizen study. As Professor Rutledge pointed out, Public
Citizen's study addressed a single arbitration provider and a
single business sector. In addition, the kinds of claims
involved, those in debt-collection actions, tend to present
little to dispute, and not surprisingly generate high win-rates
for businesses. As Professor Rutledge emphasizes, ``[s]tudies
of debt collection actions in major cities reveal that the
lender typically wins between 96% and 99% of the time, right in
line with the lender win-rate data cited in the Public Citizen
Report.''\23\
---------------------------------------------------------------------------
\23\Prof. Peter Rutledge, Arbitration--a Good Deal for Consumers: a
Response to Public Citizen, U.S. Chamber Institute for Legal Reform
(2008) (available at https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1811133).
---------------------------------------------------------------------------
Accordingly, there is little reason to assign significant
weight to the Public Citizen study, indeed, there is reason to
believe from the Navigant and Rutledge analyses that credit
card arbitration works relatively well for consumers and
businesses.
D. EMPIRICAL AND OTHER EVIDENCE ON EMPLOYMENT ARBITRATION
1. 2019 Institute for Legal Reform Study
The most significant recent evidence concerning employment
arbitration is contained in a study published this month by
INDP Analytics and funded by the U.S. Chamber of Commerce's
Institute for Legal Reform.\24\ In this study, the authors
analyzed over 10,000 employment arbitrations and over 90,000
employment lawsuits in federal court between 2014 and 2018.
This review showed that employment arbitration compares quite
favorably with litigation as a manner of resolving employment
disputes and actually delivers better, faster results than does
litigation. The main results of the study are as follows:
---------------------------------------------------------------------------
\24\INDP Analytics. Fairer, Faster, Better. An Empirical Assessment
of Employment Arbitration (May 2019).
---------------------------------------------------------------------------
In both arbitration and litigation, three-
quarters of disputes were resolved by settlements, not
judgments.\25\
---------------------------------------------------------------------------
\25\Id. at 4, 5.
---------------------------------------------------------------------------
``[W]hen cases proceeded to adjudication,
plaintiffs, who almost always were employees, were more
likely to prevail in arbitration than in
litigation.''\26\
---------------------------------------------------------------------------
\26\Id.
---------------------------------------------------------------------------
``During 2014-18, in decided cases,
employee-plaintiffs prevailed in more than 32% of
arbitrations but only 11% of litigations.'' In other
words, ``[e]mployees are three times more likely to win
in arbitration than in court.''\27\
---------------------------------------------------------------------------
\27\Id.
---------------------------------------------------------------------------
``Furthermore, prevailing employees
typically won twice as much money in arbitration than
in litigation.''
``The median award to employee-
plaintiffs was $113,818 in arbitration compared
to $51,866.''
``The average award to employee-
plaintiffs was $520,630 in arbitration compared
to $269,885 in litigation.''
``Furthermore, the award of the
top 90 percentile was $668,998 in employment
arbitration compared to $539,574 in
litigation.''\28\
---------------------------------------------------------------------------
\28\Id.
---------------------------------------------------------------------------
``Employment arbitration also was faster
than litigation.''
``Employee-plaintiff arbitration
cases that were terminated with monetary awards
averaged 569 days (523 days in median).''
``In contrast, employee-
plaintiff litigation cases that terminated with
monetary awards required an average of 665 days
(532 days in median).\29\
---------------------------------------------------------------------------
\29\Id.
---------------------------------------------------------------------------
One other significant fact identified by the study bears
special emphasis: ``79% of employees who initiated employment
arbitration earned less than $100,000 a year.'' For employees
in this earning range, results that are faster and higher in
amount--i.e., results delivered by arbitration, not
litigation--obviously are critical.
2. Other Studies of Employment Arbitration
In addition to the new INDP study, a study in the 1990s of
employment arbitrations before the American Arbitration
Association found that employees won 73% of the arbitrations
they initiated and 64% of all employment arbitrations
(including those initiated by employers). See Lisa B. Bingham,
Is There a Bias in Arbitration of Nonunion Employment Disputes?
An Analysis of Active Cases and Outcomes, 6 Int'l J. Conflict
Management 369, 378 (1995).
Also in the 1990s, Lewis Maltby, director of the American
Civil Liberties Union's National Task Force on Civil Liberties
in the Workplace, conducted a study in which he compared the
results in employment arbitration with the results in federal
court during the same period of time, finding that 63% of
employees won in arbitration compared to 15% of employees who
won in federal court. Awards to employees in arbitration were
on average 18% of the amount demanded versus 10.4% of the
amount demanded in court. The study also demonstrated that
while arbitration awards to employees are on average lower than
judgments to employees in court, the outcome for employees is
still better in arbitration because of their higher win-rates
of arbitration and the shorter duration of arbitration compared
to court proceedings. See Lewis L. Maltby, Private Justice:
Employment Arbitration and Civil Rights, 30 Colum. Hum. Rights
L. Rev. 29, 46-48 (1998).
Numerous other studies also have found that employees, a
group in many ways comparable to consumers, have fared well in
arbitration.\30\
---------------------------------------------------------------------------
\30\See George W. Baxter, Arbitration in Litigation for Employment
Civil Rights?, 2 Vol. of Individual Employee Rights 19 (1993-94);
William M. Howard, Arbitrating Claims of Employment Discrimination,
Disp. Res. J. Oct-Dec 1995, at 40-43; Theodore Eisenberg and Elizabeth
Hill, Arbitration and Litigation of Employment Claims: An Empirical
Comparison, Disp. Resol. J. Nov. 2003-Jan. 2004, at 44; Michael Delikat
and Morris M. Kleiner, An Empirical Study of Dispute Resolution
Mechanisms: Where Do Plaintiffs Better Vindicate Their Rights?, Disp.
Resol. J. Nov. 2003-Jan. 2004, at 56; Gary Tidwell, et al., Party
Evaluation of Arbitrators: An Analysis of Data Collected from NASD
Regulation Arbitrations (Aug 1999), available at http://www.nasd.com/
wcb/groops/med_arb/documents/mediation_arbitration/nasdw_009528.pdf.
---------------------------------------------------------------------------
E. PROBLEMS WITH THE ALTERNATIVE OF CLASS ACTIONS
Finally, it must be borne in mind that, if broad measures
to preclude the use of mandatory-binding arbitration in
consumer and other settings is adopted, for many, if not most,
claimants of ordinary means, class-action lawsuits may be the
only affordable alternative means of obtaining justice for any
claims above the typically very small amounts allowed to be
addressed in state small claims courts.\31\ As discussed above,
the CFPB found numerous problems to be associated with reliance
on class action lawsuits for recovery on consumer claims. But
in addition, class action lawsuits also have presented other
problems, including scandal involving fabricated testimony,
bought and sold to support false claims.
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\31\See Rocket Lawyer, Small Claims Court Limits by State,
available at https://www.rocketlawyer.com/article/small-claims-court-
dollar-limits-by-state.rl) (vast majority of states have small claims
limits of $10,000 or less; most are at $5,000 or less).
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For example, multiple renowned class action lawyers have
been exposed and convicted of such behavior. One of them,
William Lerach of Milberg Weiss, told the Wall Street Journal
that illegal kickbacks to people recruited to file class action
lawsuits is an ``industry practice.''\32\ He and fellow trial
lawyer Melvin Weiss engineered a $250 million criminal scheme
to pay people to sue companies, lied about it in court, and
became federal prisoners. Another of American's most prominent
trial lawyers, Richard Scruggs of Mississippi, pled guilty in
March 2008 to bribing a state judge to obtain more legal
fees.\33\
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\32\``I Was Guilty,'' Wall Street Journal (Feb. 2, 2008) (available
at https://www.wsj.com/articles/SB120275552784659491).
\33\A. Jones, P. Prada, ``Richard Scruggs Pleads Guilty,'' Wall
Street Journal () (available at https://www.wsj.com/articles/
SB120550974632936815).
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In light of this scandal, the Washington Post called in
2009 for ``a sober discussion about how best to achieve a
fairer, more balanced legal system through comprehensive tort
reform.''\34\
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\34\``A Fall and a Lesson,'' The Washington Post (April 9, 2008)
(editorial).
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III. Conclusion
As the above demonstrates, the solution to concerns about
the arbitration system is not to eliminate broad areas of
jurisdiction from it and leave those areas to flawed class
actions, but to improve the arbitration system further for any
areas of jurisdiction that are of concern. To disregard the
possibility of valuable reforms that on a bipartisan basis
could preserve and improve the arbitration process for these
categories of cases, rather than effectively wipe out the
availability of arbitration without simultaneously curtailing
the abuse of class actions, would be to deliver the worst
result for Americans seeking justice.
Doug Collins,
Ranking Member.
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