From Victoria Strauss:
Recently, the New York Times published a fascinating three-part series of articles on arbitration clauses, and how such clauses “buried in tens of millions of contracts have deprived Americans of one of their most fundamental constitutional rights: their day in court.”
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How Arbitration Clauses Limit Your Rights
Arbitration is often portrayed as an easier, more friendly method of dispute settlement, allowing the parties to avoid the hassle and expense of litigation. But as the Times points out, this reasonable-sounding explanation leaves out some darker truths.
Arbitration clauses are binding, and supersede your right to go to court to settle a dispute. If you sign a contract with an arbitration clause, you are waiving your right to legal action. Many people don’t realize this.
People often assume that arbitration is similar to appearing before a judge. But, says the Times, “arbitration…often bears little resemblance to court….Winners and losers are decided by a single arbitrator who is largely at liberty to determine how much evidence a plaintiff can present and how much the defense can withhold.”
Arbitrators–many of whom are retired judges–are supposed to be impartial, but often they’re not. Plaintiff and defendant choose an arbitrator from a list supplied by the arbitration company; for obvious reasons, defendants prefer to choose arbitrators with a history of defendant-friendly rulings, and plaintiffs, who may not have that inside knowledge, may not know enough to object. In turn, arbitrators feel pressure to favor defendants, since this makes it more likely they’ll be chosen–and paid.
Arbitrators’ decisions are hard to challenge. Courts have proved reluctant to reverse them, even where they are obviously unfair.
Arbitration can cost you, even beyond any judgment that may go against you. In addition to travel and filing fees, you may have to pay the arbitrator.
Christian organizations sometimes require Christian arbitration, such as that provided by Peacemaker Ministries. Prayer and scripture may be given preference over law and evidence. (I’ve seen publishing contracts with Christian arbitration clauses.)
Increasingly, arbitration clauses include bans on class actions. “By banning class actions,” says the Times, “companies have essentially disabled consumer challenges to practices like predatory lending, wage theft and discrimination….Corporations said that class actions were not needed because arbitration enabled individuals to resolve their grievances easily. But court and arbitration records show the opposite has happened: Once blocked from going to court as a group, most people dropped their claims entirely.”
Link to the rest at Victoria Strauss and thanks to Stephen for the tip.
PG says don’t believe everything you read in The New York Times.
Arbitration clauses are common in contracts between two businesses. Unlike most attorneys, PG has taken some business disputes through arbitration hearings and his clients have generally been satisfied with the results. PG has also inserted fair arbitration clauses into business contracts he’s drafted.
Most of the problems PG has heard about in arbitration practices involve arbitration organizations he has never heard of that are presumably established by the industries or, perhaps, large companies, that designate these arbitration organizations to hear disputes about their contracts. If you’re the arbitrator for the McDonalds Dispute Resolution Organization, then you may be inclined to worry about your job if you rule against McDonalds.
However, there are a couple of large, nationally respected arbitration agencies, The American Arbitration Association and JAMS (Judicial Arbitration and Mediation Services, Inc.). These agencies are the named arbitrators in at least hundreds of thousands of business-to-business contracts and their reputation for fairness and competence is essential to their survival. If the word gets out that the AAA or JAMS is playing favorites, their future business would drop through the floor. Many companies, large and small, are relying upon them to fairly resolve disputes that often involve many millions of dollars.
What are the benefits of arbitration vs. taking your dispute to court? Here’s a not-comprehensive list:
- Cost. In civil litigation, the panoply of procedural roadblocks and discovery tools are available to the wealthiest party to the lawsuit. Common defense practice is to delay, delay, delay. In some cases, an individual may simply be unable to afford the attorneys fees necessary to make it through the preliminaries to trial. In a complex case, arbitration can take time and cost money, but arbitration is intended to be a faster and less-expensive alternative to litigation. The arbitrator is able to cut through the preliminaries and move to a hearing on the merits in ways a judge can’t.
- Expertise. The judges that hear contract disputes of the type that are likely to occur between authors and publishers or authors and etailers are generalists. Your judge may handle a hearing on a drug case in the morning and your contract dispute in the afternoon. There are no judges that only handle contract disputes involving books. Very few Intellectual Property attorneys ever become judges (PG doesn’t know any who have). One of the reasons for the rise and continued success of AAA and JAMS is that they offer arbitrators with substantial knowledge and expertise in a variety of specialized areas. In an author/publisher dispute, it would be reasonable to expect that the arbitrator might be a practicing or retired IP attorney who comes to the case knowing 95% of what an attorney would have to explain about copyright and publishing practices to a judge in a civil trial.
- Time. Big Publishing contracts always specify New York state or federal courts as the place where an author must go to pursue his/her legal claims. PG is not familiar with detailed backlog statistics for New York courts, but he feels confident in saying if you file a suit against a publisher today and the publisher wants to delay, it will be several years before you actually get to trial. Federal judges are overwhelmed with criminal cases, primarily drug cases. Because of constitutional requirements for speedy trial, etc., in criminal matters, etc., the drug cases will bump civil cases down the calendar over and over. 99% of arbitration hearings are completed months or years before the same matter would be resolved by the courts.
- Privacy. Unlike courts, which are open to the public, arbitration hearings and files are private. During the recent litigation between Ellora’s Cave and Jane Litte of Dear Author, several different blogs followed the court filings and commented about what they said. Indeed, for many, the Ellora’s Cave suit revealed Jane’s identity as the person behind Dear Author. In some cases, PG has used publicity or the threat of publicity to the advantage of his clients, but a great many authors don’t necessarily want to see their names and faces associated with a court case and spread all over the internet.
Can arbitration be abused and result in unjust outcomes? Yes, it can, particularly when shady arbitration agencies are involved. Can litigation be abused and result in unjust outcomes? Yes, it can, particularly when a rich publisher and a poor author are involved.
In a perfect world, courts would be fast, fair, efficient and cost-effective for disputes large and small. Arbitration exists because it’s not a perfect world.
Below, PG has embedded a document from the American Bar Association that discusses arbitration in more detail.