By Joanne Doroshow and Emily Gottlieb of Impact / CENTER FOR JUSTICE & DEMOCRACY

In August 2001, the managing director of the National Arbitration Forum gave a detailed interview for Metropolitan Corporate Counsel magazine. He explained how corporations could use mandatory binding arbitration, including basic clauses that eliminated punitive damages and class action lawsuits, to accomplish the objectives of “tort reform.”

He declared, “Now is the time for corporate counsel to reexamine the use of the arbitration took to accomplish their own Civil Justice Reform goals.”

Without question, mandatory arbitration is achieving what the tobacco, insurance, pharmaceutical, chemical, oil and auto industries have been trying to accomplish in Congress and state legislatures for the last 20 years – elimination of the American public’s right to sue and hold accountable corporations that cause harm.

According to Paul Bland, staff attorney with Trial Lawyers for Public Justice, “Many corporations claim that with mandatory binding arbitration, you’ve forfeited you constitutional right to sue them. Mandatory arbitration clauses slam shut the courthouse doors for millions of consumers and workers just like you.”

A 1925 federal law called the Federal Arbitration Act is providing the legal basis for the brad use of arbitration clauses in consumer contracts. In the 2001 case Circuit City v. Adams, the U.S. Supreme Court relied on the law to say that companies can force arbitration clauses on workers. This term, the high court will decide of the Equal Employment Opportunity Commission, which filed a discrimination case against Waffle House on behalf of a former employee, is also bound by an arbitration clause in an employment contract.

The Federal Arbitration Act was enacted at a time when businesses were beginning to promote the use of arbitration tribunals to resolve commercial disputes. Now, however, mandatory binding arbitration clauses are becoming standard business practice in consumer contracts such as credit card and real estate agreements, applications for bank loans and leasing cars, employment contracts and even HMO policies.

In some states, they may apply broadly to insurance contracts. Consumers or small businesses that refuse to submit to mandatory binding arbitration may be unable to get credit cards, insurance, health care or jobs.

There are currently many and varied non-statutorily mandated ways of resolving disputes outside the court system. The most common voluntary method is negotiated settlement between disputing parties. What distinguishes mandatory binding arbitration and other non-voluntary systems are the restrictions they place on the rights of injured people.

Under mandatory binding arbitration, access to the courthouse is blocked. Arbitrators are not required to have any legal training. They may be biased, former industry executives or even under contract with the party against whom the claim is filed.

The discovery process, whereby parties obtain information from one another, is extremely limited. Rules of evidence do not apply. The proceedings are not public. Arbitrators issue no written legal opinions, so no legal precedent or rules for future conduct can be established. Costs must generally be split between the injured victim and the insurance company, including arbitrator’s fees, which can range between $200 and thousands of dollars per hour. And there is no right to appeal.

Mandatory binding arbitration is part of a centuries-long corporate movement toward “private justice,” replacing the civil jury system with one over which corporations have more control. In addition to mandatory binding arbitration, legislative proposals abound to establish “no-fault” compensation systems or force injured victims before administrative tribunals, as exists in the workers’ compensation area where compensation is set by statute, often at horribly low amounts.

Workers now face serious disadvantages relative to those with access to the judicial system. The chief consequence of the nation’s movement towards “private justice” is the protection of corporations, professional groups and governmental bodies from lawsuits and liability. Whereas the judicial system is structured more to neutralize resource and power imbalances between the parties, mandatory alternative dispute resolution systems require victims to resort to compensation systems where more powerful corporate interests can and do prevail. As a result, victims often receive less compensation and other important functions of the tort system are disrupted, especially deterrence of unsafe practices and the disclosure of dangers to the public.

Impact – Winter 2002 – Volume 2, Issue 1

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