A subcommittee of the House Judiciary Committee recently held a hearing titled “Justice Denied: Forced Arbitration and the Erosion of our Legal System.” This hearing, which followed an April 2 hearing at which Alan Kaplinsky testified on “Arbitration in America” before the Senate Judiciary Committee, was held in conjunction with several legislative proposals regarding arbitration that are pending in the House of Representatives.
The hearing, which took place before the Judiciary Committee’s subcommittee on Antitrust, Commercial and Administrative Law, began with opening statements from several members, including subcommittee chair David Cicilline, ranking Republican member F. James Sensenbrenner, and Henry C. Johnson. The subcommittee then received testimony from six witnesses, several of whom also presented testimony before the U.S. Senate’s Judiciary Committee. Each witness received five minutes to supplement his or her written testimony. Subcommittee members then addressed questions to the witnesses.
The testimony and questioning focused particularly on arbitration of disputes involving employment, assisted living facilities, and small businesses. Employment disputes included workplace sexual harassment, wage and benefits claims, and alleged violations of employment rights under the Uniformed Services Employment and Reemployment Rights Act (USERRA).
Unsurprisingly, the statements and questioning unfolded along party lines. Democratic members displayed consistent animus toward arbitration agreements and directed their questions to those witnesses who demonstrated similarly critical views of arbitration. The fact that Democratic committee leadership used the phrases “justice denied” and “erosion of our legal system” in the title of the hearing set the tone for many of the statements and questions. Democratic members used their questions to emphasize arguments that arbitration deprives consumers of a fair chance to litigate grievances, stacks the odds in favor of the business who selects the arbitrator (therefore incentivizing biased outcomes), and effects an end-run around federal rights and protections.
However, as we have previously observed in connection with Alan Kaplinsky’s testimony before the Senate Judiciary Committee, such arguments lack factual and legal support. For example, businesses do not have an unfair advantage in selection of an arbitrator because most consumer arbitration agreements provide that either the AAA or JAMS will administer the arbitrator. As administrators, AAA and JAMS have procedures in place to ensure that arbitrations are conducted fairly. For example, if the parties choose, they may select an arbitrator from a list provided. Both AAA and JAMS require their arbitrators to be impartial, independent, and neutral, subject to procedures requiring disclosure of potential conflicts and an opportunity for either party to object. An arbitrator may be removed or disqualified based even on suspicions of bias. These practices overlay the fairness safeguards of the Federal Arbitration Act, including provisions expressly authorizing the courts to vacate an arbitrator’s award for, among other things, “evident partiality.”
Republican members and those witnesses who testified that arbitration greatly benefits consumers relied heavily on the CFPB’s 2015 empirical study of consumer arbitration. This study was replete with statistics demonstrating that arbitration is faster, cheaper and more effective in resolving consumer claims than litigation, and that consumers fare better in arbitration than they do in class action litigation. The Republican members pointed to a number of statistics from the CFPB’s study, including the total amount of $424,495,451 in fees generated by plaintiffs’ law firms relative to an average award of $32.35 recovered by actual consumers via class action litigation. The CFPB found, by contrast, that the average consumer recovery in arbitration was $5,389, or 166 times the average recover in a class action claim. The CFPB study also found that arbitration claims resolve up to 12 times faster than class action litigation and that consumers pay less to arbitrate than to sue in court. Republican members also emphasized the long history of judicial oversight of arbitration, including review of outcomes under the Federal Arbitration Act.
Given the pendency of several legislative proposals, including the Forced Arbitration Injustice Repeal Act (H.R. Bill 1423), the House hearing is further evidence that many in Congress are actively seeking to restrict consumer arbitration agreements with class action waivers, if not prohibit them entirely. Our podcast addressed the current state of consumer arbitration, particularly with respect to proposed legislation and recent litigation outcomes. The podcast also discusses recommendations for appropriately revising arbitration agreements to proactively manage risks related to these ongoing developments.
