Industry Lawyer Concedes Arbitration Clauses Suppress Claims and Reduce Payments to Consumers

by Jeff Sovern

Industry lawyer Thomas B. Hudson of Hudson Cook has authored Arbitration Agreements: Not Always Good All the Time for AutoDealer Today, in which he writes:

An arbitration agreement is the dealer’s first and best line of defense against class-action lawsuits. If you think that isn’t reason enough, have a word with the many South Carolina dealers sued in class actions over allegedly improper doc fees who were able to have the class actions dismissed, with individual plaintiffs left with claims in arbitration. Dealers who did not use arbitration agreements paid millions of dollars to their customers and the customers’ class action lawyers.

* * *

Lawyers for consumers, when confronted with documents signed by their clients and containing arbitration agreements, tend to lose interest in pursuing the consumer’s claim. Perhaps these lawyers are unfamiliar with how to handle an arbitration proceeding, or perhaps they are of the view that they can’t get a decent award of attorneys’ fees from an arbitrator.

Whatever the reason, consumers have historically not initiated arbitration proceedings with much frequency. * * *

He also advocates:

In order to make sure arbitration agreements between dealers and consumers will be enforced by courts, and even by those courts that bend over backward to rule for consumers, lawyers for dealers who draft the agreements make them as consumer-friendly as possible. One of the consumer-friendly provisions that you’ll often see is one by which the business undertakes to pay some or all of the consumer’s costs in arbitration. 

0 thoughts on “Industry Lawyer Concedes Arbitration Clauses Suppress Claims and Reduce Payments to Consumers

  1. Jeff Sovern says:

    The available evidence indicates that consumers don’t bother filing for arbitration when small amounts are at stake. I’m not aware of any reason to think that consumers seek arbitration for small amounts when they have meritorious claims, or alternatively that small claims lack merit as a general matter. I’m not sure how much can be learned about arbitration from the single case described in the article, but even assuming that that case is typical of arbitration, the consumer’s $2,000 in damages (ignoring the punitive damages) are somewhat larger than those suffered by consumers in many of the claims that the research shows arbitration suppresses.

  2. Ted F says:

    Exactly. Arbitration agreements protect against meritless lawsuits designed to benefit attorneys. Not so much against meritorious claims.

  3. Gregory Gauthier says:

    The article also describes the “outcome of a recent arbitration proceeding,” in which the consumer was awarded $2,000 on a TILA claim, $50,000 in punitive damages, $49,917.50 in attorney’s fees, and $2,979.16 in expenses for a total recovery of over $100,000. The author’s takeaway is that “an arbitration agreement won’t do you a whole lot of good if your underlying businesses practices violate the law” and that “If word of successful claims like this one spread to other consumer lawyers, we may well see the frequency of consumer-initiated claims rise.”

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