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Subject: “Businesses often protect themselves from the high costs of litigation by including arbitration clauses and waivers of the right to a jury trial in their terms and conditions. Do you believe that this trend benefits our country?”

Writer: Farah Famouri

Arbitration clauses and waivers of the right to a jury trial are “a phenomenon that pervade[s] virtually every corner of the daily economy”[1] and is becoming increasingly more popular. There have been studies finding that “75% of major telecommunications, banking, and financial services companies employ mandatory arbitration provisions.”[2] These provisions are controversial and widely discussed among advocates, businesses, and legal community. Although arbitration clauses are beneficial for businesses, they are ultimately harmful to individuals and consumers and thus does not benefit the United States.

Arbitration is asserted by supporters to deliver the “same result, more efficiently” than litigation. There are many reasons why businesses would opt for including arbitration clauses and waivers of the right to a jury trial, from financial to informational benefits. Arbitration is a more intimate experience that could circumvent hostility between the consumer and the business in comparison to litigation. The main benefit is the fact that arbitration is less expensive and time-consuming than litigation, for the business, consumer, and taxpayer. Proponents of arbitration such as Peter Rutledge have stated, “By streamlining the dispute resolution process and reducing the costs associated with it, arbitration makes it easier for individuals to find an attorney willing to take their case or, alternatively, to represent themselves.”[3] Assertions such as these are supported by data from states such as California, whose state code requires the disclosure of data regarding arbitration. From this data, it is confirmed that arbitration is faster than litigation—the average litigated case is about two years in comparison to the average arbitration case being six to seven months.[4] Additionally, arbitration tends to be more flexible for scheduling than traditional litigation. Since arbitration has simplified rules of evidence and procedure, that makes it easier for consumers to represent themselves—35% of consumers represented themselves in one study.4 Arbitration is also more private and confidential that traditional litigation, which can be beneficial for all parties involved. These benefits culminate in clauses that are a simple solution to many legal problems of businesses.

However, arbitration is not without its drawbacks. There are limited options for the consumer if they do not like the outcome. Also, there are concerns of objectivity on the part of the arbitrator since they are being paid by the case, which could result in the arbitrator being “reluctant to rule against the repeat-playing firms that may select or veto them again in the future.”[5] However, one of the most distressing disadvantages of arbitration is the unequal playing field of information on the side of the business to the consumer. A study looking at 52 separate arbitration clauses found “if consumers challenge business practices, limitations on discovery will disadvantage them more than the businesses, as the businesses will hold most of the relevant information.”[6] This is also shown through the preclusion of class action lawsuits, as noted in Szetela v. Discover Bank. In this case, the California Court of Appeals noted, “Although styled as a mutual prohibition on representative or class actions, it is difficult to envision the circumstances under which [a class action preclusion] provision might negatively impact [the business]…This provision is clearly meant to prevent customers, such as Szetela and those he seeks to represent, from seeking redress,”[7] In addition to precluding class action lawsuits and the unequal possession of information by the business to the consumer, many of the arguments in rebuttal to these drawbacks to arbitration rely heavy that these consumers agreed to this arbitration. Even the Supreme Court has noted that arbitration “is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit.”[8] However the previously mentioned study also noted that in practice this is not the case, “Given the lack of information available to consumers in predispute arbitration clauses, and the difficulty of obtaining and deciphering these clauses, it is likely that most consumers only become aware of what rights they retain and what rights they have waived after disputes arise.”6 Businesses can capitalize on the ignorance of their consumer through arbitration clauses.

Waivers of the right to a jury trial and arbitration clauses, in their current form, are harmful to consumers in the United States. As of now, these clauses are modeled to benefit the business and put consumers on an unequal playing field to be able to negotiate. However, the financial and efficiency benefits of arbitration are worthwhile enough to seek ways to improve the practice rather than dismiss it outright.

[1] Aaron-Andrew P. Bruhl, The Unconscionability Game: Strategic Judging and the Evolution of Federal Arbitration Law, 83 N.Y.U. L. REV. 1420, 1429 (2008)

[2] Theodore Eisenberg et al., Arbitration’s Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Nonconsumer Contracts, 41 U. MICH. J.L. REFORM 871, 880–83 (2008)

[3] Peter B. Rutledge, U.S. Chamber Inst. For Legal Reform, Arbitration—A Good Deal For Consumers, 6 (2008)

[4] David Horton & Andrea Cann Chandrasekher, After the Revolution: An Empirical Study of Consumer Arbitration, The Georgetown Law Journal, vol.104:57 (2015)

[5] Paul D. Carrington & Paul H. Haagen, Contract and Jurisdiction, 1996 SUP. CT. REV. 331, 346

[6] Demaine, Linda, and Hensler, Deborah R., ‘Volunteering’ to Arbitrate Through Pre-Dispute Arbitration Clauses: The Average Consumer’s Experience (2004). Law & Contemporary Problems, Vol. 67, No.55, 2004.

[7] Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, 867 (Ct. App. 2002)

[8] Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989).

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