September 08, 2003
The Right of Trial By Jury Shall Be Preserved

Here's one for Charles Dodgson's files on how private entities can limit one's rights as much as, if not more than, any government entities: Many consumer contracts now come with restrictive and expensive mandatory arbitration clauses.

[E]very day, consumers sign contracts that contain mandatory-arbitration clauses with insurance companies, investment brokers, car dealers, student-loan and mortgage lenders, or they provide their consent by making purchases with credit cards or by buying a product, experts said. For instance, some computer companies put the clause with the warranty in the box, said Celeste Hammond, a professor at Chicago-based John Marshall Law School and an arbitrator who works with the American Arbitration Association.

"Any disputes with them about the warranty will have to be resolved in Akron, Ohio, by an arbitrator there. That's what you've agreed to just by buying the computer," she said. Across all industries, "it's becoming ubiquitous."


"When you have mandatory arbitration in consumer agreements, most likely nobody knows they're there," she said. "What consumers don't realize is when you agree to this you cannot go to trial, the arbitrator is not bound to apply a rule of law, that if an arbitrator were to make an incorrect decision there is no appeal," she said.

Also, "usually the arbitrator doesn't give a reason for the decision. There's no rationale, no reasoning, which is what you would get in litigation. So you don't know if the person understood your point."

Some say the steep cost of arbitration prevents some consumers from pursuing their claims. "With our system of justice, the courts are supported by taxes. That's not true with arbitration. It's private," Hammond said. "The parties have to pay the judges and some of the judges bill at very high figures, $400 or $500 an hour sometimes."

"It can be extremely costly, depending on the rules of the particular arbitration provider," said Dale Pittman, a lawyer based in Petersburg, Va., who has represented clients in arbitration cases.

A recent arbitration case that was ultimately settled cost the consumer $10,000, Pittman said, whereas a court filing would have cost $175.

There's no question in my mind that this sort of thing is first cousin to all of the evil "tort-reform" laws that are being proposed. The sole reason for them is to reduce costs for businesses by shifting some of those costs, in the form of liability, to the consumer. It's something that doesn't show up in the price tag at Walmart or Target, but what it represents is a relatively small class of consumer - let's call them the "unlucky bastards" - subsidizing lower prices for the rest of us and better profit margins via greater cost certainty for producers.

The good news in this article is that the standard practice of shoving a binding arbitration agreement into a standard sales contract can be turned back on the producer.

Margo Rebar and her husband found a way to fight back [against a negligent termite inspection] when the pest-control company's clause seemed to be pushing them toward an arbitration process.

Her lawyer advised her to send a note to the company with her next payment, a note similar to that companies send to customers when they change a contract clause. The Alabama Supreme Court had ruled earlier that companies could edit contracts by sending such notes to their customers, and Rebar's lawyer figured that should go both ways.

The lawyer "designed for me a little clause that said I no longer accept binding arbitration," Rebar said. It said "you have X number of days to argue this, otherwise it goes into effect."

The company cashed her check without responding to the note. Last year, the Alabama Supreme Court ruled in the Rebar's favor. She and her husband are now suing the pest-control company.

Good for them. I hope everybody has a lawyer as smart as the Rebars' when they need one.

Posted by Charles Kuffner on September 08, 2003 to Legal matters | TrackBack

i think this stinks it gave me no info what soever i don't see how anyone could think this was good

Posted by: tttststtm on December 11, 2003 11:18 AM