By: Robert J. Nahoum
WHAT IS ARBITRATION?
As technology advances, our lives have been made easier in many ways. There is no shortage of companies lining up to provide us with one sort of a service or another. Some we pay for like our cell phones, cable, internet and Netflix while others are free like Facebook, twitter and YouTube. One thing these companies all have in common is what remedies are made available to consumers should something go wrong – binding arbitration.
Hidden within virtually every terms of service, service agreement, terms of use and consumer contract is what is called an “arbitration provisionâ€. What this contractual term says is that if there is a dispute between the consumer and the company, you cannot go to court to resolve the dispute. Instead, you must resolve the dispute in a private quazi-court administered by a private third dispute resolution company. The most well known arbitration company is the American Arbitration Association (AAA) but there are other less known ones like JAMS.
The initial intent of arbitration was to provide an expedited forum for resolving disputes free from the expense and delay common in traditional courtroom litigation. The idea was that the parties would simply present their side of the story and their evidence confidentially to the arbitrator who would make a rational and informed decision.
WHAT IS WRONG WITH ARBITRATION?
The initial intent of arbitration has been hijacked by corporate interests who have instead used arbitration as a way to deprive consumers of their day in court and avoid paying the full price for their wrongdoing. The Supreme Court of the United States has held that mandatory binding arbitration is constitutional even where the arbitration provision precludes the use of class actions. This has allowed bad corporate actors to hide their bad behavior and avoid costly class action litigation.
To be clear, as a general proposition – arbitration is a very bad deal for consumers. This fact is evidenced by the widespread use of arbitration provisions. The “take-it-or-leave-it†nature of arbitration provisions works in favor the companies and not the consumer. The objectivity of the chosen arbitrators has proven time and again to be in question. Arbitrators have far too often proven to be less than objective particularly the when arbitrator depends on the corporation for a steady stream of work. Also, because arbitrations are confidential and decisions are not publicly accessible, this lack of transparency tips the process in a biased direction in favor of the company and allows them to continue their poor business practices unchecked.
HOW TO USE ARBITRATION TO YOUR ADVANTAGE
Before I describe the upside to arbitration, let’s be clear that I find the practice abhorrent to my sense of fairness and justice. In a perfect world, free from the outsized power of corporations to influence the rules of society, there would be no arbitration and every consumer dispute would be resolved quickly and fairly in a court of law. But we do not live in a perfect world, we live in a very imperfect world and the best we can do is play the cards we’ve been dealt in the most beneficial and advantageous way we can.
So how do we take advantage of arbitration and use it to our benefit?
The single biggest threat to arbitration for corporations is the government. If Congress decides to pass a law outlawing arbitration (not likely to happen in our lifetime), Corporations will suffer a tremendous blow forcing them to be more accountable for the quality of their products and services most particularly through consumer class action lawsuits. Arbitration provisions ban consumers from joining together as a class of litigants. The inability to bring class actions against corporations is the single most important element of the arbitration process that corporations are desperate to preserve.
Out of fear of government action, and with the goal of preserving arbitrations and the ban on class action lawsuits, corporations have made their arbitration provisions less onerous as they once were. The theory is that so long as the arbitration process appears favorable to the consumer, the less likely Congress is to outlaw the practice.
Traditionally, the costs of arbitration are borne equally by the parties. Arbitrations could be expensive because the arbitrator gets paid similar to lawyers do, based on an hourly basis or sometimes a flat fee. Having to pay the cost of the arbitrator in order to adjudicate your claim is fundamentally unfair especially because in a court of law, those costs do not exist. To preserve the system, many corporations have agreed in their arbitration provisions to pay the costs. For this reason, filing an arbitration often costs the consumer nothing out-of-pocket.
Similarly, and out of the same sense of self preservation, the American Arbitration Association Consumer Rules flipped the obligation to pay arbitration fees in consumer cases on the corporations:
“Under AAA Consumer Arbitration Rules, after the consumer pays a $200 filing fee, the [corporation] must pay a $1500 filing fee, a $500 hearing fee, and $1500 arbitrator compensation per hearing day. The [corporation] will even have to pay the consumer’s $200 fee if the arbitration agreement provides the company will pay all costs.â€
This is where the consumer can take advantage of the process – generally it cost a couple of hundred dollar to file an arbitration. Soon after the arbitration is filed, an arbitrator is assigned. Once the arbitrator is assigned, the costs of arbitration start to accrue. Before the case even goes to a hearing, the corporation’s arbitration bill is already into four figures. If the corporation hires an outside attorney, the costs go even higher.
If your dispute is for a relatively small amount of money (perhaps under a couple thousand dollars), the incentive is for the corporation to settle quickly before the costs go even higher.
THE TAKEAWAY
Arbitration is an unfair and unjust means of resolving a consumer dispute. However, more often than not, it is the only game in town. If you have a dispute with a corporation, read very closely the terms of service and in particular the dispute resolution process. Make sure the burden to pay the arbitration fees fall on the corporation. If so, don’t be afraid to file that arbitration. Your complaint can be very basic, and you can do it online from the comfort of your own home.
Don’t let corporations hide safely behind their arbitration provisions. Call their bluff and make them resolve your dispute in the venue they selected.
If you need help with a consumer protection issue, contact us today to see what we can do for you. With office located in Brooklyn and Rockland County, the Law Offices of Robert J. Nahoum represents consumers in cases throughout the Tristate area including New Jersey.
The Law Offices of Robert J. Nahoum, P.C
(845) 232-0202
www.nahoumlaw.com
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