The Real Problem With Forced Arbitration

I have found the discussions of the arbitration study, ‘Whimsy Little Contracts' with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements,interesting, see, e.g., here, here and here.I wonder, however, whether everyone is missing a major point about forced consumer arbitration. Whether consumers are better off, worse-off or the same, and regardless of whether consumers understand what they were forced to sign or have a right to “opt out,” an industry or profession should not have the ability to divorce itself from our civil justice system. 

One point on which there is no disagreement is that consumer arbitration is unilaterally imposed on the consumer through a contract of adhesion. (Even the Supreme Court has recognized this in Concepcion). This allows an industry such as car dealers, homebuilders, banks or credit card companies, to “opt-out” of our civil justice system simply by including a few sentences in a form contract. See, e.g., W. Scott Simpson, Stephen J. Ware, and Vickie M. Willard, The Source of Alabama’s Abundance of Arbitration Cases: Alabama’s Bizarre Law of Damages for Mental Anguish, 28 AM. J. TRIAL ADVOC. 135 (2004) (These industries [auto and home builders] have effectively divorced themselves from the Alabama civil justice system.) The result for the consumer is no jury, no appeal, and no class action. But more importantly, the consequence for society is no precedent, no certainty of results, and no ability to affect the common law.

We need three branches of government. We rely on the judicial branch to do more than just resolve individual disputes— it creates and modifies the common law, interprets statutory law, and establishes precedent that guides others in dispute resolution. Arbitration, as a form of alternative dispute resolution can be, and often is, valuable.  I have served as an arbitrator, and testified in arbitrations, and I support this system of ADR. But arbitration must be an “alternative,” and it must be voluntary. It cannot serve the role of the third branch of government.

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