Topic: "Arbitrator bias" | Main
How not to write an arbitration clause
February 04, 2008 by Ross Runkel at LawMemo
Roberto Rodriguez sued his former employer, asserting state law claims for unpaid commissions. The employer moved to compel arbitration, but the trial court denied the motion. The Washington Court of Appeals affirmed, agreeing with the trial court that the arbitration agreement was inherently unfair and unenforceable.
Rodriguez v. Windermere Real Estate (Washington Ct App 01/28/2008).
As the court put it:
Windermere provided the contract, wrote the arbitration procedures, and selects the arbitrators. The arbitrators must be solely from current employees within the Windermere franchisee family. The arbitrators are all brokers or agents of sister franchisees, which have a continuing, mutually beneficial relationship with the franchisor. The arbitrators are expected to reflect the “Windermere Way.” The “Windermere Way” may mean that it is in the interests of Windermere Wall Street to have the commission in dispute paid to a continuing employee rather than to someone whose employment it has terminated. We conclude the potential arbitrators have a known, existing and substantial relationship with the party-franchisee. On these facts, the process does not satisfy the neutrality requirements of the arbitration statute. We affirm the trial court’s denial of the motion to compel arbitration.
Attacking arbitration of credit card disputes
September 27, 2007 by Ross Runkel at LawMemo
Public Citizen has launched a huge attack against the use of arbitration to resolve disputes between credit card companies and consumers.
- The Arbitration Trap: How Credit Card Companies Ensnare Consumers (77 page report from Public Citizen)
- Mandatory Arbitration Enables Credit Card Companies To Trap Consumers (press release from Public Citizen)
- Bogus Attack on Arbitration Really about Plaintiffs’ Lawyers’ Right to Sue (press release from Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce
Public Citizen makes some strong claims:
- "Consumers are railroaded into arbitration even if their identity was stolen or they never agreed to take disputes to arbitration. In several cases we uncovered, the National Arbitration Forum, which routinely handles MBNA’s “collection” arbitrations, ignored repeated consumer protests that identity theft was the source of the alleged debt."
- "In fact, we found that the National Arbitration Forum is today the credit card industry’s go-to dispenser of swift decisions against its customers. The Forum and other arbitration providers obsessively enshroud their work in secrecy."
- "In the more than 19,000 cases in which an NAF-appointed arbitrator was involved, 94.7 percent of decisions were for business."
- "Arbitrators have a strong financial incentive to rule in favor of the companies that file cases against consumers because they can make hundreds of thousands of dollars a year conducting arbitrations. The arbitrators are chosen by the arbitration firms hired by MBNA and other corporations, which are unlikely to pick arbitration firms that produce results they do not like. Arbitrators routinely charge $400 or more an hour. Top arbitrators can charge up to $10,000 per day and some make $1 million a year."
Institute for Legal Reform's response:
- “The plaintiffs’ lawyers’ attack on the arbitration system – a process that has helped consumers resolve disputes for more than 85 years – is nothing more than their latest attempt to enrich themselves by opening the door for more class action lawsuits."
- “Arbitration has successfully given American consumers an effective alternative to get justice by quickly and fairly resolving disputes without being forced into an overcrowded and expensive court system."
- “The average federal case takes two years to get resolved at trial, and only one percent of all federal cases actually get to trial. This compares to a recent California study showing that the arbitration system takes, on average, only four months to resolve a dispute. Other studies have shown that consumers initiating arbitration cases win about 60 percent of the time."
- “The plaintiffs’ lawyers’ attempt to undermine the arbitration system is not about justice for consumers, it is about growing the size of their own pocketbook.”
I haven't seen a response from National Arbitration Forum.
Updated 09/28/2007: National Arbitration Forum blog posted the following yesterday afternoon:
"Today, the National Arbitration Forum posted a report describing the facts about the fairness and affordability of modern arbitration. The Benefits of Arbitration report includes extensive statistical and anecdotal evidence supporting arbitration. This information establishes that arbitration is a vital element of the American civil justice system, where consumers and businesses alike can resolve disputes without going to court."
"Click here for the report on the benefits of arbitration."
Ryan's certiorari petition
June 26, 2005 by Ross Runkel at LawMemo
The 6th Circuit refused to enforce a pre-dispute arbitration agreement signed by employees of Ryan's Family Steakhouses' multi-state restaurant chain. Walker v. Ryan's (6th Cir 03/09/2005). Ryan's has petitioned [here] the US Supreme Court for a writ a certiorari.
Ryan's lost on several issues, and the petition invites the Supreme Court to correct them. The formal "Questions Presented" section of the petition raises four main points, claiming that the Court of Appeals improperly:
- Used a heightened "knowing and voluntary" standard for waiver of a jury trial.
- Used extraordinary scrutiny to declare the agreements unconscionable under state law, thus showing hostility to arbitration agreements.
- Applied the law of Tennessee to agreements that were entered into in other states.
- Invalidated the agreements based on a perceived potential for structural bias in the arbitration system.
- The real question in a petition for a writ of certiorari is whether a case merits the precious time and attention of nine Supreme Court Justices. Let's assume the 6th Circuit was wrong on all four points raised in the petition. In order to win, Ryan's must prevail on all four of them. That makes this case somewhat cumbersome for the Court, which prefers to decide single-issue cases.
- The Court is usually looking for cases that involve a split of authority between the Circuits, and Ryan's does not make a good case for such a split.
- Perhaps the Court will see this as case as being important because the 6th Circuit used a variety of legal devices to circumvent the core policy of the Federal Arbitration Act, which was to eliminate judicial hostility toward arbitration agreements.
How not to set up an arbitration system
March 09, 2005 by Ross Runkel at LawMemo
Ryan's Family Steak Houses set up an interesting three-party arbitration arrangement. (1) Potential employees signed an agreement with Employment Dispute Services, Inc. (EDSI), an arbitration service-provider, agreeing to use EDSI as an arbitration forum. In theory, Ryan's could enforce that contract as a third-party-beneficiary. (2) Ryan's and EDSI had a contract in which Ryan's agreed to use EDSI to resolve employee disputes. In theory, an employee could enforce that contract as a third-party-beneficiary.
The 6th Circuit found so many flaws in this deal that I cannot list them all. In Walker v. Ryan's (6th Cir 03/09/2005) employees sued claiming FLSA violations, and Ryan's moved to compel arbitration. Denied; denial affirmed.
Lack of consideration - no contract
EDSI provided no consideration to the employees because EDSI retained the right to modify its arbitration rules at any time. Ryan's provided no consideration because it was not obligated to submit its employment disputes to EDSI.
No knowing and voluntary waiver - no contract
Lots of facts on this point. Plaintiffs were poorly educated, in dire financial circumstances, were hired quickly with time to read the arbitration policy, possibly got misleading information from managers. Bottom line: No waiver of the right to go to court.
Lack of mutual assent - no contract
The arbitration language was on page 10 of an 11 page contract; it was a take-it-or-leave it deal in which the employee had no bargaining power; the employee was poorly educated; and the agreement was not adequately explained. Conclusion: no mutual assent.
Biased arbitration panel
The 6th Circuit found that the EDSI arbitration forum was not neutral, and that made the agreement unenforceable. EDSI is a for-profit company and Ryan's provided 42 percent of its gross income during one year. Said the court, "Ryan's effectively determines the ... pools of arbitrators." On top of that, EDSI had no protocol for selecting potential arbitrators out of its pools of arbitrators. Usually, arbitrator bias is a matter for post-arbitration litigation, but here the court felt that this system was "fundamentally unfair."
OK Ryan's. Maybe you should try using a real arbitration system.
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