March 7, 2012

The Unfairness of Arbitration?

By Art Hinshaw

In today’s New York Times, Stanford Law Prof. Amalia Kessler has an interesting op-ed about consumer arbitration.  The interesting thing about this piece is not its arguments against consumer arbitration but its historical take on arbitration that looks back past the FAA.  That said, it hints  at an argument I’ve heard many times about the high percentage of arbitration cases that are decided in favor of the company.

. . . some studies have found that they are systematically biased in favor of the companies that hire them . . .

I’m always interested in these studies, but must admit that I’m not as familiar with them as I’d like.  My recollection is that they say something along the lines of  “corporations win all the time, therefore these arbitrations are unfair.” 

My problem with this critique is that it presumes that the corporations should not have won those cases.  I’m skeptical because my clinic students mediate lots of debt collection cases, and in 90+% of those cases the defendant/debtor/individual admits to owing the debt.  This makes me question the usefulness of the statistics describing the number of cases that are decided for the company.

So here’s my question: does anyone know of any studies which includes an analysis of the underlying cases as compared to the outcome of the arbitrations? 

 

 

 

 

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Comments

  • Anon says:

    You might want to start with a 2008 symposium held by the University of Michigan Journal of Law Reform (one of the symposium articles is referenced in Kessler’s op-ed). From Omri Ben-Shahar’s introduction of the symposium, 41 U. Mich. J.L. Reform at 779: “This symposium aims at strengthening the empirical basis of the debate over arbitration clauses. The four articles included all pursue the same quesiton: Do we know whether arbitration is better or worse for individual claimants, relative to litigation?” I haven’t read through the four studies, but they seem to address your concern of comparing arbitration outcomes to litigation outcomes, rather than looking solely at absolute arbitration outcomes.

  • Jan Schau says:

    The other statistic I’ve always wondered about is the comparison to cases filed in court. Here in Los Angeles, only 3 percent get to trial. The others are either settled or knocked out on pre-trial motions. There are far fewer motions for summary judgment ent, and no demurrers in arb cases. All that means many bad cases get weeded out in court, but not in arb. Could that explain it?

  • Kristen Blankley says:

    Indisputably blogger Sarah Cole and I looked at the California NAF data a few years back, which was the same data that Public Citizen used to say that consumers lose 99% of the time. Of course, Public Citizen did not mention that consumers were defendants in well more than 90% of the cases, and the data did disclose a high default rate.

    Here is a link to our article: http://pennstatelawreview.org/articles/113%20Penn%20St.%20L.%20Rev.%201051.pdf

  • Art Hinshaw says:

    Thanks for pointing these articles out, and how could I forget the Cole-Blankley piece. More stuff for the summer reading pile.

    Thanks again.

  • Chris Drahozal says:

    Art — Your recollection of the studies referred to is correct. They find a 95 percent or so win rate for businesses in the arbitrations studied and assert that as a result arbitration must be unfair. No baseline for comparison is provided. It turns out that the cases studied are almost all debt collection cases brought by businesses (typically credit card companies). When you compare the win rates of businesses in similar cases in court, it turns out that businesses win an even higher percentage of the time in court. See Drahozal & Zyontz, Creditor Claims in Arbitration and in Court, 7 Hastings Business Law Journal 77 (2011), available at http://www.uchastings.edu/hblj/docs/Drahozal.pdf. The high win rates of businesses in the studied arbitrations provide no evidence that arbitration is unfair.

  • Art says:

    Even better – thanks Chris.

  • Joan Vogel says:

    I also think that many of the biases in the company-controlled arbitration processes had to do with the blackballing of arbitrators who ruled against the companies. I do recall articles by law professors complaining about this.

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