Massachusetts Lawyer Blog

While not specific to Massachusetts, a recent AAJ Law News Digest (by email, June 5, 2008) cited three articles illustrating interesting developments in arbitration and law, as well as an interesting poll.

Costs vs. Benefits in Arbitration

In No Room for Error in Arbitration?, Thomas E.L. Dewey and Kara Siegel, New York Law Journal, June 03, 2008, write:

Arbitration of commercial disputes has become increasingly common, due in part to the widely held perception that arbitration is a less expensive and more expeditious method of dispute resolution. Recent court decisions, however, have underscored the fact that those perceived benefits come at a price: the U.S. Supreme Court ruled in April that parties cannot agree to a higher standard of judicial review of arbitration awards, and appeared to question the validity of a long-standing doctrine that does permit courts to overturn arbitration awards that are in "manifest disregard" of the law. The net result: parties who agree to arbitrate their disputes should understand that it will be very difficult to obtain relief from an erroneous arbitration award.

Franchise Concerns in Arbitration

In Pressure Grows to Rethink the Use Of Mandatory-Arbitration Clauses By Richard Gibson, he states:

Most franchise contracts once called for mandatory arbitration of issues, rather than going to court. But these days there is growing pressure -- from franchisees, judges, Congress and even some franchisers -- to rethink that longstanding arrangement. 'The trend toward arbitration has pretty much ended,' says Peter Lagarias, a franchisees' attorney in San Rafael, Calif. Among the concerns is that there is no guaranteed right of appeal. 'You have to take what the arbitrator decides,' says Joshua Becker, an in-house counsel for fast-food franchiser Kahala Corp. For that reason, he says, Kahala, whose brands include Blimpie submarine sandwiches and TacoTime, favors resolving issues with franchisees in court."

Doctors Not Treating Patients without Arbitration

The Tampa Tribune Editorial, New 'Hello' In Health Care: Sign Here Not To Sue, states:

"It's not uncommon today for a woman visiting her gynecologist to give up her right to sue if something goes wrong. The doctor simply won't treat her unless she agrees to take any potential claim to an arbitration panel rather than the courts. The same goes for many acute-care hospitals and nursing homes, where stressed-out families with little choice are handed 60-odd pages of documents to sign. Sandwiched near the end, the mandatory-arbitration agreement gets the briefest of explanations. Binding arbitration - not health precautions and explanations - is the new 'hello' in health care. It's a physician's answer to the threat of litigation and the high cost of malpractice insurance. Like some trial lawyers who have convinced clients to sign away their constitutional rights to limited legal fees, doctors are getting patients to sign away their constitutional right to sue, too. This troubling new practice is a barrier to the doctor-patient relati onship, akin to signing a pre-nuptial agreement before getting married. The practice is a form of blackmail: Sign it or get out."

Consumer Poll Results on Arbitration

The AAJ on their webites provide the article, New Poll: Americans Say “No Thanks” To Binding Arbitration:

Washington, DC—Americans generally disapprove of binding arbitration provisions in consumer contracts as an alternative to civil legal proceedings involving a judge or jury, according to a recent national poll by survey firm Peter D. Hart Research Associates Inc.

“Mandatory binding arbitration doesn’t give consumers a choice,” said American Association for Justice President Kathleen Flynn Peterson. “This poll proves that when asked to choose, consumers overwhelmingly say ‘no thanks’ to unfair arbitration agreements. Arbitration can only be a valid and effective method of resolving disputes when both parties agree voluntarily.”

Consumers are sometimes required to sign a contract with a company when purchasing products or services ranging from cell phones to nursing home care. These contracts often include a binding arbitration provision which states the consumer agrees to have any dispute with the company decided by an arbitrator, rather than by a judge or jury in a civil legal proceeding.

Binding arbitration has even been enforced in nursing home deaths. Massachusetts resident John Donahue suffered an eye injury so severe that it required removal of his eye while under the care of a nursing home. The infection caused by his injury eventually led to his death. When his daughter Marlene Owens went to file a claim against the nursing home corporation she was told that her father signed a binding arbitration agreement without any family members present. The nursing home insists that the case be taken to arbitration and the case is currently pending.

According to the polling, when consumers learn that the company picks the arbitrator, and they give up their right to take the case to court and binding arbitration applies even if they are seriously injured, 81 percent disapprove.

The poll also shows broad support for Congressional legislation called the “Arbitration Fairness Act” that seeks to protect Americans from abusive arbitration agreements. The legislation would ensure that the decision to arbitrate be made voluntarily and after a dispute has arisen. In addition, the legislation enjoys very strong support across party lines with no statistically significant differences between Democrats (+38) and Republicans (+37).

Last week, the U.S. House and Senate passed The Food, Conservation and Energy Act of 2008 conference agreement containing a voluntary arbitration provision which would allow farmers to opt out of binding mandatory arbitration clauses at the time they sign a contract with a processing company. The enactment of this provision would mark a significant step forward for farmers who are subject to these abusive contracts.

Summary

Is arbitration right for you? What are your downsides and upsides? These are questions to consider anytime you're faced with an arbitration clause or are considering including one in your contracts. The larger issues remains, are forced arbitration agreements fair and should they be allowed under law? It appears both consumers and companies are now giving this some additional thought.