Attacking Arbitration; Benefitting the Plaintiffs’ Bar

By July 14, 2008Briefly Legal

It isn’t on the House Judiciary Committee’s website yet, but it looks like a subcommittee and then the full committee may act this week on H.R. 3010, the Arbitration Fairness Act. For “fairness” you can substitute “dead, dead, dead.” From the bill summary:

Arbitration Fairness Act of 2007 – Declares that no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of: (1) an employment, consumer, or franchise dispute, or (2) a dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power.

Declares, further, that the validity or enforceability of an agreement to arbitrate shall be determined by a court, under federal law, rather than an arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement.

Former FTC Commissioner Christine Varney, now at Hogan & Hartson, has an op-ed in today’s Wall Street Journal, “Arbitration Works Better Than Lawsuits”: “Congress is taking up legislation this week that will wipe out arbitration provisions in hundreds of millions of consumer contracts — for everything from credit-card agreements to cell phones to health-insurance policies, even a contract for the purchase of a kitchen sink. The bill is so sweeping that it wouldn’t apply just to contracts consumers may sign in the future. It will cancel arbitration agreements agreed to in the past.”

This week’s issue of the National Journal magazine carries a story, “Trial Lawyers Mount a Comeback” (subscription only). The American Association for Justice, i.e., trial lawyers, is set on killing arbitration as one of its legislative victories this year, the magazine reports.

More from Varney (a Clinton appointee, by the way):

After years at the Federal Trade Commission, I understand the importance of ensuring that consumers can seek redress for their complaints. The Arbitration Fairness Act makes this harder.

Arbitration foes say that it puts consumers at a disadvantage, because they are forced to waive the right to proceed in court and to obtain a jury trial. This ignores reality: The average consumer with a small claim is unlikely to sue at all. Studies confirm what common sense suggests: Few, if any, lawyers will even take cases involving small potential recoveries. And without a lawyer, navigating the court system is nearly impossible.

A very good column.

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