Publications


• The Arbitration Abomination
  by Dan Lawton

The paid purveyors of arbitration (like JAMS, an industry heavyweight and for-profit provider) and beneficiaries of it (like Kaiser Permanente) see no evil when it comes to the arbitration system from which they profit so handsomely. They have no incentive to reform the system that serves them so well. Comparing their propaganda to the reality of arbitration illuminates the need for reform, as explained below.

The Propaganda
According to marketing rags available in any JAMS reception area:
• "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. As the next decade of cases unfolds, it does so with an excellent foundation, one which supports clients and neutrals in the arbitration process."
• JAMS provides "cost-effective, efficient administration" and a "reliable outcome"; and
• Arbitrations administered by JAMS "are resolved 43% faster than the industry average, therefore costing you less money."

The Reality
Arbitration is too expensive for most individuals and small businesses. Anyone who's ever received one of JAMS' or AAA'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, multi-thousand dollar arbitration bills are a small line item in the legal budget and no problem. 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." Arbitrators know 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" 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 arbitrations honestly doubts this fact (and I've been on corporations' 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 are generally not required to make their awards in accordance with law or even make findings. Thus the arbitration industry and courts not only tolerate error and excuse arbitrators' failures to do the job they're paid so handsomely to do (decide disputed questions submitted by the parties) – but explicitly refuse to correct errors even when they result in "substantial injustice." JAMS and AAA dominate the arbitration industry. They barge smoothly along, making errors, perpetrating substantial injustices, giving no reasons for all the dirt 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?

Haven't Individuals Agreed to Be Abused?
The industry's proffered excuse for the abuses inherent in contractual arbitration is that the parties have agreed to them 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.

Unfortunately for many consumers and other individuals, the "consent" involved in their "agreement" to arbitration is no real consent at all. Coercion, not consent, is the reality. Arbitration provisions aren't written by consumers or individuals. Instead, they're written by whichever would-be defendant (usually a corporate entity) thinks arbitration (often before JAMS or AAA) is the most friendly forum for it. That's why such provisions often bar punitive damages and class actions. But because the corporate draftsmen of arbitration provisions often bury them and put them in fine print, most consumers and individuals never notice them. Too, individuals sign employment agreements with mandatory arbitration provisions, which are presented as a take-it-or-leave-it condition of accepting employment. (SB 1538, just approved by the State Senate Judiciary Committee, would ban employers' insistence on such provisions as a condition of prospective 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 in which real people live.

Some Modest Proposals
The propaganda of JAMS' flacks and corps of judges-for-hire is at war with reality. Reforms-in-the-making paint a more accurate picture of the true state of arbitration today.

The Judicial Council recently (and unanimously) approved tough new ethics rules for arbitrators – banning ex parte contacts, forbidding using 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 (such as JAMS) 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 a bill that would prohibit pre-employment mandatory arbitration clauses as a condition of prospective employment. The courts, too, have recently stricken 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, non-cosmetic reform of any organization – be it the Red Cross, LAPD, INS, or industry dominators like JAMS and AAA – begins with an honest assessment of the shortcomings (as well as the virtues) of that organization. Until the paid purveyors of arbitration (like JAMS' Richard Chernick, Managing Director of JAMS' arbitration practice and a frequent commentator on the supposed virtues of arbitration) are willing to undertake that honest assessment, they rightly are perceived as little more than flacks masquerading as thoughtful commentators on the process. And 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 not too dissimilar from asking the LAPD to police its own excessive uses of force against African-American citizens, or asking the Roman Catholic Church to police its own clergy sex abuse problem. Someone else has to step in and do it – because the institution has shown it isn't capable of protecting the very people whom it publicly proclaims it's there to serve.

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