CJAC: Civil Justice Association of California

Jun 28, 2012

Fancy arguments won't avoid conflicts with Concepcion

Daily Journal
June 28, 2012

Brian Kabateck and Scott Malzahn overlook the benefits of arbitration and ignore the inherent conflict between SB 491 and the U.S. Supreme Court’s Concepcion ruling in their op-ed “SB 491: Protecting Consumers’ Right to Join Together” (June 25, 2012). Arbitration is a fair, efficient, cost-effective method of resolving disputes. With our court budgets facing even worse cuts, there is no reason to reduce the use of arbitration as a fair and viable alternative to going to court.

Of course plaintiffs’ lawyers would prefer that consumers be steered away from arbitration. If that happens, the lawyers will be able to get more business in the form of consumer class action lawsuits – where the consumers usually get coupons worth pennies and the lawyers earn millions.

But consumers do well in arbitration. The Financial Industry Regulatory Authority reports that 62 percent of customers pursuing arbitration settled their arbitrations in 2010, and over 45 percent of the consumers who proceeded to an award received damages. That translates to over 70 percent of consumer-initiated securities arbitrations resolved with at least some recovery for consumers.

Additionally, the most recent statistics provided by the American Arbitration Association show that approximately 60 percent of its consumer arbitrations settle or are withdrawn from administration, and consumers prevail in almost half (48 percent) of the remaining consumer-initiated arbitrations.

Plus, in stark contrast to the skyrocketing costs of litigation, many consumers and employees who bring claims in arbitration pay exactly nothing to pursue their claim — no filing fees, no attorney fees. They also resolve their cases faster. Consumer arbitrations administered by the AAA proceed to an award in an average of four to six months, as opposed to at least two years for a civil case filed in a federal district court.

Ironically, the AT&T contract at issue in the Concepcion case was fair; even pro-consumer. A customer could initiate dispute proceedings by completing a one-page form on the AT&T website. If AT&T did not offer to settle the claim, the customer could invoke arbitration by completing a Demand for Arbitration, also on the website. If the parties proceeded to arbitration, AT&T had to pay for all costs of non-frivolous claims. The customer could also sue in small claims court instead of using arbitration. AT&T was prohibited from seeking attorney fees from the customer and if the customer received an award greater than AT&T’s settlement offer, AT&T would have to pay $7,500 minimum to the customer and double the attorney fees.

It is understandable why plaintiffs’ attorneys dislike arbitration agreements. The AT&T agreement was good for consumers, but not for lawyers. The lawyers’ role is diminished in arbitration and the disputes are much less profitable. But arbitration can have better outcomes for consumers than class action lawsuits.

Furthermore, no matter how fancy of an argument one tries to come up with, SB 491 absolutely conflicts with the Concepcion ruling. Kabateck and Malzahn state that SB 491 “does not disfavor or discriminate against arbitration agreements.” SB 491 would seemingly apply to all contracts, but it would establish a state-law rule that invalidates a clause that can arise only in an arbitration setting. In the Concepcion ruling the Supreme Court said that “state-law rules that stand as an obstacle to the objectives of the Federal Arbitration Act’s objectives” are preempted regardless of whether they apply more broadly than arbitration agreements alone.

Moreover, although some might argue that this bill would allow classwide arbitration, the U.S. Supreme Court has also held that a party may not be compelled to submit to class arbitration unless the parties agreed to do so. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010).

Consumers have recognized the benefits of arbitration, Congress recognized the benefits of arbitration when it passed the FAA, and the U.S. Supreme Court has repeatedly rejected states’ attempts to undermine the FAA. It’s time to let it be.

Kim Stone
President, Civil Justice Association of California

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