Common Abuses in Mandatory Arbitrations
By Mitchell S. Ostwald
The Trial Lawyers for Public Justice ("TLPJ") recently submitted its public comments in response to the Federal Trade Commission ("FTC") and the Department of Commerce ("Department") notice on alternative dispute resolution for consumer transactions in the borderless online market place. The TLPJ's comments urged the FTC and the Department not to support, endorse or encourage the use of mandatory binding predispute arbitration for international online transactions, and suggested that if the use of ADR for online transaction is recommended, that they only encourage the use of ADR that is voluntary (not mandatory), non-binding and post dispute in nature.
In attempting to chronicle common abuses in mandatory arbitrations, the TLPJ discussed some of the most serious and prevalent problems:
Arbitration clauses often impose unreasonably large fees on consumers.
It is much more expensive to initiate an arbitration proceeding than to file a lawsuit through Superior Court and pay a nominal filing fee.
Arbitration clauses that require consumers to travel long distances to resolve their disputes. While the contracts are viewed as adhesion contracts, they require any dispute to go to a single location to resolve that dispute. That means consumers will be forced to arbitrate a claim which would cost more to travel then the dispute in question.
Loser pays provisions. Given that most individual consumer claims are relatively modest in size, the prospect of potentially paying enormous fees to a corporate defendant's high-priced law firm, is all to often enough to deter a consumer from going forward even with a strongest claim.
Arbitration clauses that shorten the statute of limitations.
Clauses that limit the remedies an arbitrator may provide, notwithstanding that a number of courts have refused to enforce clauses of this sort, the judicial reaction is not to deter this type of abuse.
Arbitrators often favor large corporate "repeat player" clients.
The TLPJ concluded that the FTC and the Department should vigorously work to avoid expanding the scope and prevalence of these abuses. As a general rule, the TLPJ supports ADR that is non-binding and truly voluntarily dispute forum. If consumers have a meaningful choice as to whether they will participate in an ADR system, then the persons providing ADR services will have an incentive to design a much fairer ADR system, and consumers will be giving an opportunity to correct their abuse and receive just treatment under the law.
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