Bound & Gagged
How will the battle over mandatory binding arbitration affect you?
You're taking legal action against a large company. But
instead of a jury trial, you're facing an arbitrator.
It's a growing trend, as credit card companies, banks, auto
manufacturers and other big businesses inform customers in fine
print that any claim, dispute or controversy will be settled in
arbitration, where there's no jury and no right to appeal. The
result: Just 3 percent of U.S. civil cases now make it to trial.
"A trial is very expensive," says Judge William Huss, a
mediator and arbitrator in Los Angeles and author of Start Your Own Law Practice. Arbitration, he contends,
"is fast, fair and final."
Consumer advocates dispute its fairness, however, since
arbitration clauses prohibit class action lawsuits, limit complaint
periods and include filing fees. Plaintiffs pay at least $750 just
to get a case started, according to Public Citizen, a national
public interest organization based in Washington, DC.
Content Continues Below
Arbitration can work for and against entrepreneurs, who can use
it to limit lawsuits against their firms, but can also find
themselves forced into arbitration as the plaintiff if, for
example, they're in a dispute with their credit card company.
"The small-business community probably does feel there's a
role for binding mandatory arbitration. With costs going up for
insurance and liability, they would like to limit the downside of
being sued," says Linda Sherry of Consumer Action, a San
Francisco-based public interest group. "The problem with
arbitration is that it puts high costs on the plaintiff."
Battles over the role of arbitration are heating up. A coalition
called Stop Binding Mandatory Arbitration wants to raise awareness
of arbitration abuse. And in November, the U.S. Supreme
Court--which has generally ruled in favor of arbitration--was
scheduled to hear arguments in Cardegna v. Buckeye, a
Florida case involving quick-money lenders. In the case, the 4th
U.S. Circuit Court of Appeals first ruled that arbitration terms
are enforceable even if a contract is illegal, but then it
overturned that decision.
"[This] is an issue about whether arbitration clauses are
going to be treated differently than other types of
contracts," says Paul Bland, attorney for the plaintiffs in
the Cardegna case. "We're saying there have to be limits
to arbitration." For now, make sure to read the fine
print.