News
Alternative Dispute Resolution
Jul. 24, 2002
Fair Shake?
Forum Column - By Dan Lawton - The paid purveyors of arbitration (like industry heavyweights JAMS and the American Arbitration Association) and beneficiaries of arbitration (like Kaiser Permanente) see no evil when it comes to the system from which they profit so handsomely. They have no incentive to reform the industry that serves them so well. Comparing arbitration propaganda to reality illuminates the need for reform.
Forum Column
By Dan Lawton
The paid purveyors of arbitration (like industry heavyweights JAMS and the American Arbitration Association) and beneficiaries of arbitration (like Kaiser Permanente) see no evil when it comes to the system from which they profit so handsomely. They have no incentive to reform the industry that serves them so well. Comparing arbitration propaganda to reality illuminates the need for reform.
• The propaganda. According to marketing rags available in any JAMS reception area:
• Arbitrations administered by JAMS "are resolved 43 percent faster than the industry average, therefore, costing you less money."
• JAMS provides "cost-effective, efficient administration" and a "reliable outcome."
• "Since [1927, arbitration] has grown to be a fully viable alternative" to the courts.
• The California Supreme Court "has helped to effectuate the parties' contractual intent by not infecting the substantive aspects of the process by excessive litigation while at the same time preserving the procedural integrity of the arbitration process."
• The court has been "persistent in scrutinizing the procedural and fairness aspects of the private arbitration process."
• "The Supreme Court and the states ... are leading the way into a new era of arbitration - better defined, better understood, and more widely accepted."
• The reality. Arbitration is too expensive for most individuals and small businesses. Anyone who's ever received one of JAMS' or the American Arbitration Association's fat bills can attest to this fact. The expense is prohibitive to people whose cases would be heard in court otherwise, at taxpayer expense.
For a corporate giant like Kaiser, large arbitration bills are a small line item in the legal budget. But for an individual who's not affluent, it's a problem so great as to leave him or her out of arbitration altogether.
How about "reliable outcomes"? You've got to be kidding. Arbitration is far more arbitrary and unpredictable than court - unless, of course, you're a large corporate defendant. Many arbitrators "split the baby." They know that there is no real appellate review of their awards. Arbitrators don't have to list reasons for their decisions (and frequently don't), leaving parties in the dark as to the true basis of their decisions. This is not a recipe for "reliable outcomes."
What about the "procedural and fairness aspects" that JAMS brags about? Get real. The playing field in arbitration is tilted in favor of those who benefit most from it - corporate defendants. No lawyer or corporation who participates in arbitration honestly doubts this fact (and I've been on the corporate side in arbitration, too). Arbitration awards in employment and medical malpractice cases are 20 percent of the amounts awarded by juries. The lack of discovery in most contractual arbitrations leaves smoking guns hidden - something no fair system of justice would allow.
Let's talk about decision making on the merits. California courts won't disturb an arbitral award even if the award is wrong and results in "substantial injustice." Contractual arbitrators generally are not required to make their awards in accordance with law or even to make findings.
Thus, the arbitration industry and courts not only tolerate error and excuse arbitrators' failures to do their jobs but also explicitly refuse to correct errors even when they result in "substantial injustice."
JAMS and American Arbitration Association barge smoothly along, making errors, perpetrating substantial injustice, giving no reasons for the dirt that they do, secure in the knowledge that no court can undo their errors and injustices.
What person who went to law school possibly can feel good about such a system?
The industry's proffered excuse for the abuses inherent in contractual arbitration is that the parties have agreed to be abused when they "agreed" to arbitration in the first place, so there shouldn't be room to complain when injustice results later. This is a fiction, of course.
For many consumers and other individuals, the "consent" involved in their "agreement" to arbitrate is no real consent at all. Coercion, not consent, is the reality. Consumers and individuals don't write arbitration provisions. Instead, whichever would-be defendant (usually a corporate entity) thinks arbitration is the friendliest forum writes them. That's why such provisions often bar punitive damages and class actions.
But because the corporate draftspeople of arbitration provisions often bury them in fine print, most consumers and individuals never notice them. Individuals also sign employment agreements with mandatory arbitration provisions that are presented as take-it-or-leave-it conditions of accepting employment. Thus, the "consent" involved in most such cases isn't real - it's theoretical, a legal nicety with no connection to the real world.
• Some modest proposals. The propaganda of the industry's flacks is at war with reality. Reforms in the making paint a more accurate picture of the reality of arbitration today.
The Judicial Council recently (and unanimously) approved tough new ethics rules for arbitrators, banning ex parte contacts, forbidding the use of judges as marketing tools, permitting disqualification of arbitrators who have conflicts of interest and requiring disclosure of financial relationships with parties involved in disputes.
The Legislature, too, has gotten busy. Bills pending before the California Assembly include proposals to allow consumers to "opt out" of arbitration with one particular arbitration firm and to keep data on the outcomes of arbitrations. (Notably, the California Dispute Resolution Council opposes this bill.)
Also, the Senate Judiciary Committee recently approved SB1538, which would prohibit pre-employment mandatory arbitration clauses as a condition of prospective employment.
The courts, too, recently have struck down absurdly one-sided arbitration provisions in "bill stuffer" notices foisted on consumers by AT&T and Discover Bank.
All these events are cause for celebration - but more reforms are needed. Substantive, noncosmetic reform of any organization - be it the Red Cross, the Los Angeles Police Department or JAMS - begins with an honest assessment of the shortcomings (as well as the virtues) of that organization.
Until the paid purveyors of arbitration are willing to undertake that honest assessment, they rightly are perceived as little more than flacks masquerading as commentators.
So long as they play that role, others (like the Judicial Council, the Legislature and the courts) will have to do the reforming for them. And that's as it should be. Asking the arbitration industry to do a good job reforming its own house is like asking the LAPD to police its own excessive uses of force or asking public accountants to stop falsifying financial statements.
Someone else has to step in and do it because the institution has shown it isn't capable of protecting the very people that it publicly proclaims it's there to serve.
Dan Lawton is a trial and appellate lawyer in San Diego and an adjunct professor at Thomas Jefferson School of Law. He represents both plaintiffs and defendants, and both individuals and corporations, in civil litigation.
By Dan Lawton
The paid purveyors of arbitration (like industry heavyweights JAMS and the American Arbitration Association) and beneficiaries of arbitration (like Kaiser Permanente) see no evil when it comes to the system from which they profit so handsomely. They have no incentive to reform the industry that serves them so well. Comparing arbitration propaganda to reality illuminates the need for reform.
• The propaganda. According to marketing rags available in any JAMS reception area:
• Arbitrations administered by JAMS "are resolved 43 percent faster than the industry average, therefore, costing you less money."
• JAMS provides "cost-effective, efficient administration" and a "reliable outcome."
• "Since [1927, arbitration] has grown to be a fully viable alternative" to the courts.
• The California Supreme Court "has helped to effectuate the parties' contractual intent by not infecting the substantive aspects of the process by excessive litigation while at the same time preserving the procedural integrity of the arbitration process."
• The court has been "persistent in scrutinizing the procedural and fairness aspects of the private arbitration process."
• "The Supreme Court and the states ... are leading the way into a new era of arbitration - better defined, better understood, and more widely accepted."
• The reality. Arbitration is too expensive for most individuals and small businesses. Anyone who's ever received one of JAMS' or the American Arbitration Association's fat bills can attest to this fact. The expense is prohibitive to people whose cases would be heard in court otherwise, at taxpayer expense.
For a corporate giant like Kaiser, large arbitration bills are a small line item in the legal budget. But for an individual who's not affluent, it's a problem so great as to leave him or her out of arbitration altogether.
How about "reliable outcomes"? You've got to be kidding. Arbitration is far more arbitrary and unpredictable than court - unless, of course, you're a large corporate defendant. Many arbitrators "split the baby." They know that there is no real appellate review of their awards. Arbitrators don't have to list reasons for their decisions (and frequently don't), leaving parties in the dark as to the true basis of their decisions. This is not a recipe for "reliable outcomes."
What about the "procedural and fairness aspects" that JAMS brags about? Get real. The playing field in arbitration is tilted in favor of those who benefit most from it - corporate defendants. No lawyer or corporation who participates in arbitration honestly doubts this fact (and I've been on the corporate side in arbitration, too). Arbitration awards in employment and medical malpractice cases are 20 percent of the amounts awarded by juries. The lack of discovery in most contractual arbitrations leaves smoking guns hidden - something no fair system of justice would allow.
Let's talk about decision making on the merits. California courts won't disturb an arbitral award even if the award is wrong and results in "substantial injustice." Contractual arbitrators generally are not required to make their awards in accordance with law or even to make findings.
Thus, the arbitration industry and courts not only tolerate error and excuse arbitrators' failures to do their jobs but also explicitly refuse to correct errors even when they result in "substantial injustice."
JAMS and American Arbitration Association barge smoothly along, making errors, perpetrating substantial injustice, giving no reasons for the dirt that they do, secure in the knowledge that no court can undo their errors and injustices.
What person who went to law school possibly can feel good about such a system?
The industry's proffered excuse for the abuses inherent in contractual arbitration is that the parties have agreed to be abused when they "agreed" to arbitration in the first place, so there shouldn't be room to complain when injustice results later. This is a fiction, of course.
For many consumers and other individuals, the "consent" involved in their "agreement" to arbitrate is no real consent at all. Coercion, not consent, is the reality. Consumers and individuals don't write arbitration provisions. Instead, whichever would-be defendant (usually a corporate entity) thinks arbitration is the friendliest forum writes them. That's why such provisions often bar punitive damages and class actions.
But because the corporate draftspeople of arbitration provisions often bury them in fine print, most consumers and individuals never notice them. Individuals also sign employment agreements with mandatory arbitration provisions that are presented as take-it-or-leave-it conditions of accepting employment. Thus, the "consent" involved in most such cases isn't real - it's theoretical, a legal nicety with no connection to the real world.
• Some modest proposals. The propaganda of the industry's flacks is at war with reality. Reforms in the making paint a more accurate picture of the reality of arbitration today.
The Judicial Council recently (and unanimously) approved tough new ethics rules for arbitrators, banning ex parte contacts, forbidding the use of judges as marketing tools, permitting disqualification of arbitrators who have conflicts of interest and requiring disclosure of financial relationships with parties involved in disputes.
The Legislature, too, has gotten busy. Bills pending before the California Assembly include proposals to allow consumers to "opt out" of arbitration with one particular arbitration firm and to keep data on the outcomes of arbitrations. (Notably, the California Dispute Resolution Council opposes this bill.)
Also, the Senate Judiciary Committee recently approved SB1538, which would prohibit pre-employment mandatory arbitration clauses as a condition of prospective employment.
The courts, too, recently have struck down absurdly one-sided arbitration provisions in "bill stuffer" notices foisted on consumers by AT&T and Discover Bank.
All these events are cause for celebration - but more reforms are needed. Substantive, noncosmetic reform of any organization - be it the Red Cross, the Los Angeles Police Department or JAMS - begins with an honest assessment of the shortcomings (as well as the virtues) of that organization.
Until the paid purveyors of arbitration are willing to undertake that honest assessment, they rightly are perceived as little more than flacks masquerading as commentators.
So long as they play that role, others (like the Judicial Council, the Legislature and the courts) will have to do the reforming for them. And that's as it should be. Asking the arbitration industry to do a good job reforming its own house is like asking the LAPD to police its own excessive uses of force or asking public accountants to stop falsifying financial statements.
Someone else has to step in and do it because the institution has shown it isn't capable of protecting the very people that it publicly proclaims it's there to serve.
Dan Lawton is a trial and appellate lawyer in San Diego and an adjunct professor at Thomas Jefferson School of Law. He represents both plaintiffs and defendants, and both individuals and corporations, in civil litigation.
#337227
Columnist
Daily Journal Staff Writer
For reprint rights or to order a copy of your photo:
Email
Jeremy_Ellis@dailyjournal.com
for prices.
Direct dial: 213-229-5424
Send a letter to the editor:
Email: letters@dailyjournal.com