Some first thoughts about methodological problems with the Chamber of Commerce Arbitration Study

by Jeff Sovern

The Chamber of Commerce has released a study about arbitration. I paste in immediately below the relevant portion of the press release, and then I identify some methodological issues with the study.

A new study released today by the U.S. Chamber of Commerce Institute for Legal Reform found that consumers and employees win more money, more often, and more quickly through arbitration than in litigation. The analysis of more than 300,000 consumer and employment arbitration and court claims from 2014-2021 was conducted by ndp analytics, a Washington-based strategic economic and communication research firm.

Fairer, Faster, Better III: An Empirical Assessment of Consumer and Employment Arbitration is the most comprehensive study undertaken of consumer and employment arbitration. The new study comes as the U.S. House of Representatives is set to vote this week on the so-called FAIR Act, which would effectively ban arbitration and force people into class action litigation.

The study found that in claims initiated by consumers: 

    • Consumers were more likely to win in arbitration (almost 42 percent) than in court (about 29 percent).  
    • On average, consumers won more money through arbitration (almost $80,000) than in court (about $71,000).  
    • Arbitrations on average were resolved faster (321 days) than litigation (439 days).  

The study found that in claims initiated by employees:  

    • Employees were more likely to win in arbitration (almost 38 percent) than in court (almost 11 percent). 
    • On average, employees won more money through arbitration (around $444,000) than in court (about $408,000).  
    • Arbitrations were resolved on average faster (659 days) than litigation (715 days).   

“The data shows exactly why it’s the trial bar’s number one priority to prohibit arbitration and increase the number of lawsuits. Arbitration is a simpler, faster, and fairer way for consumers and employees to resolve disputes,” said Harold Kim, president of the U.S. Chamber of Commerce Institute for Legal Reform. “The so-called FAIR Act is a smokescreen designed to increase class actions, where lawyers often get big fees and class members get little to no money.”

I am not convinced that the study’s methodology supports its argument that arbitration is faster, fairer, or better. Here are some issues:

  1. For the litigation sample, the study used only federal cases. The study tells us nothing about how cases filed in state court compare to arbitration. Only something like 5% of all cases are filed in federal court. And that 5% is not a random sample. Cases can be filed in federal court only if there is federal subject matter jurisdiction (typically, diversity of citizenship and amount or federal question). Consequently, cases filed in federal court are not likely to be typical of civil cases overall.
  2. The sample of cases screened into arbitration is also not random. Probably, nearly all of those cases were heard in arbitration because the underlying contract included an arbitration clause. For example, the big cell phone providers all include arbitration clauses in their contracts. Hence, the arbitration sample probably includes cell phone cases and the litigation sample probably includes very few of them, if any. So the comparison is one of apples and oranges because certain types of cases will predominantly be heard in arbitration and others predominantly in litigation. In that case, it is not at all surprising that the results would differ.
  3. The sample excluded personal injury cases. No explanation is given as to why. Could it be that personal injury cases, which tend to produce high damages, were disproportionately heard in litigation and that including them would have changed the results?
  4. The sample excluded class actions. But much of the dispute about arbitration clauses revolves around their class action waivers. Class actions provide an economical way of aggregating and litigating many small claims but arbitration frustrates that process. A more useful study would have compared what happens with small claims in the different forms of dispute resolution. For that, we have to see the CFPB study.

No doubt, the industry will cite this flawed study as often as it can. It will be up to the rest of use to point out the problems with relying on it.

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