Businesses souring on arbitration

The website Arbitration Nation has reported on the cognitive dissonance experienced by businesses when it comes to arbitration of commercial disputes. Based on a new survey, only 60% of companies arbitrated commercial disputes in 2011, compared to 85% in 1997. Why aren't businesses clamoring to arbitrate their disputes with other businesses?

The most common reasons given by survey respondents (general counsel and senior corporate lawyers) for not using arbitration included: the difficulty of appeal, the perception that arbitrators tend to compromise, the concern that arbitrators may not follow the law, a lack of confidence in neutrals, and high costs of arbitration. The study, conducted through Cornell’s Survey Research Institute, was co-sponsored by Pepperdine’s Straus Institute for Dispute Resolution, Cornell University, and the International Institute for Conflict Prevention & Resolution (CPR). (Its results are not currently available on-line.)
Arbitration Nation noted that while businesses are increasingly avoiding arbitration, the United States Supreme Court is making it more making it increasingly difficult to avoid the application of harsh arbitration contracts. Of course, most of the new court holdings enforcing pre-dispute mandatory arbitration clauses victimize non-businesses, such as consumers, employees and victims of civil rights abuses. Arbitration Nation links to a new article by Thomas Stipanowich that proposes a rating and ranking system for arbitration processes. We already have ample evidence exempt these group from mandatory arbitration. It is palpably clear that big businesses are using mandatory arbitration to take advantage of consumers, employees and victims of civil rights abuses, using their disparate bargaining power. They are using "arbitration" as a method of gaining immunity for their illegal actions. They are doing this, even as they vote with their feet that they don't like arbitration for themselves. Instead of gathering more data, we completely carve out consumers, employees and civil rights plaintiffs from being required to arbitrate. Sure, give them the option of arbitrating a case, but only after a dispute has arisen; never force them into mandatory, binding, pre-dispute arbitration. What I have just described is the approach of the Arbitration Fairness Act.

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Ripped off? Go get an attorney! But wait . . . you won’t find one.

Think of all the times that merchants have ripped people off. Sometimes it’s a line-item that jacked up your bill. You called and complained, but you eventually gave up and ate the $3.50 after making four phone calls without satisfaction. Sometimes, you bought an appliance and after getting home discovered that it wasn’t as it was promised, but the merchant refused to take it back. Or it might be a $1,000 piece of electronics. Only after the warranty expired, it became clear that it didn’t function as promised. Maybe it’s a used car that you bought for $2,500 and right after driving it off the lot you discovered that it literally wouldn’t go, certainly not at highway speeds, and that the dealer knew of the problem but refused to refund your money. Consider the many complicated financial transactions you’ve signed, credit cards, car loans, or payday loans. What do you do if you notice you’ve been ripped off, but the amount of damages you’ve suffered is relatively small, less than $3,000? You go get an attorney, right? Wrong. You won’t find an attorney to handle cases in this range unless an attorney decides to help you as a favor or “pro bono.” Why not? Because it is a time-consuming task to open a case, file it, prepare for trial and represent a consumer in a trial. It can take dozens of hours to get a decision in the trial court, and then the defendant, who is often represented by a high-priced attorney, can appeal the case, delaying the result for another year. The net result is that consumers who have been ripped off for less than $3,000 (and, actually, much greater amounts too) will have only one real option to litigate their claim: at the small claims court where they will represent themselves.

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Payday lending in a nutshell

I represent consumers in several class actions against payday lenders. The suits are all based in Missouri, but payday lenders freely do business in most states. What are "payday lenders?" Here is a six minute video by the Center for Responsible Lending that will give you a good idea. To best understand what goes on, ignore the industry rhetoric. Instead, recognize that payday loan shops commonly charge more than 400% interest to the working poor, setting people up in debt traps from which the end result is financial ruin. Why not simply ban shops that engage in these practices? Good question. Ask your elected state and federal representatives why the hell they aren't taking serious action. Hint: the problem has a lot to do with campaign contributions. One more thing: the payday loan shops try to exculpate themselves with arbitration clauses that ban all class actions and class arbitrations. These clauses make it extra difficult to successfully sue these businesses, even when they are flagrantly violating the loan laws that do exist. By using these mandatory pre-dispute arbitration clauses, payday lenders are essentially giving themselves Get-Out-of-Jail-Free cards.

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How to really reform the SEC

Dan Smolin asks a good question: Why should we assume that the SEC's Mary Schapiro will make a U-turn in 2009, given that Schapiro has spent her entire career inviting brokerages to "self-regulate" and doing everything in her power to keep consumers at bay when they are ripped off and kept in the dark by brokerages? The easy answer is that we shouldn't assume that Schapiro will all of a sudden go to bat for the consumers. After all, Schapiro "has been at the very center of a failed regulatory process for the past two decades." We know where her loyalties lie, just like we know that Tim Geithner will never turn hard against Wall Street to clean up the corruption (see here for more details on Geithner--and here). Truly, years of actions speak much more loudly than months of words for both Schapiro and Geithner. I am convinced that Obama doesn't have the horses he needs to clean up Wall Street corruption. It's a typical modern conundrum where you need a highly motivated powerful outsider to get the job down, but there simply aren't enough highly motivated powerful outsiders. If Mary Schapiro had even an iota of interest in protecting consumers, Smolin wouldn't be needing to advocate for the following changes he is now pushing--they would have been a reality years ago:

1. Abolish the mandatory arbitration system and give investors back their constitutional rights;

2. Abolish "self regulation" by FINRA, which is a sham. The brokerage industry should be regulated by a governmental authority with the power to do so effectively. The SEC would be the likely agency to do so, with the right leadership;

3. Require brokerage statements to:

(a) Disclose the risk of every portfolio, as measured by standard deviation; (b) Compare the returns of every portfolio to a portfolio indexed to benchmarks of comparable risk; and (c) Disclose the "cost equity" of the portfolio, which is the amount the investor must make to break even, after payment of commissions, fees and margin interest. Common sense, right? Why aren't these reforms a reality? Good question. And why is a terribly motivated person like Mary Schapiro still sitting there pretending to be a reformer?

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Families seek to find out why contractors died. Contractor sues them for $10M

The best justice money can buy.   Pretty amazing.   The story was covered on Alternet.org: The following article is by the lawyers representing the families of four American contractors who worked for Blackwater and were killed in Fallujah. After Blackwater refused to share information about why they were killed, the families…

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