The Law Offices of Robert J. Nahoum, P.C. - A New York Consumer Protection Law Firm

What is Arbitration?

By: Robert J. Nahoum

What is Arbitration?

As technology has advanced our lives have undoubtedly been made easier.  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 agreement and consumer contract is what is called an “arbitration provision”.  What this contractual term says is that if there is a dispute between the consumer and the company, you cannot go to court but must instead have the dispute resolved 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.

However, this initial intent 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 wrong doing.  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.

Arbitration has become 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 when arbitrator depends on the company 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.

Finally, the rapidly increasing costs of arbitration have obviated its initial purpose.  According to a study by consumer watchdog group Public Citizen, the cost of filing arbitration is significantly higher than the cost of filing a traditional lawsuit.

If you need help with a consumer protection issue, contact us today to see what we can do for you.

The Law Offices of Robert J. Nahoum, P.C
(845) 232-0202

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