You know what rarely rises to the top of my “to do” list?  Reading scholarly articles and studies about arbitration.  Blech.  But, since I haven’t seen any good court decisions lately, it is time to visit the neglected pile of articles.  Turns out, I should have read some of them right away.  Below are summaries of five new-ish articles that have crossed my desk.  A few offer peeks into arbitration data that is generally not available and some conclusions to chew on over this Thanksgiving holiday.

First is “Arbitration Nation,” an empirical study of 40,775 consumer, employment and tort cases filed with four different arbitration providers between 2010 – 2016 (AAA, JAMS, ADR Services and Kaiser).*   The data came from two sources: public data that the State of California requires arbitration providers to file, as well as a cache of data  gathered by the New York Times.  After reviewing the data, the authors conclude: 1) arbitration is faster that court litigation and generally more affordable for plaintiffs; 2) there was no surge in arbitration filings after the Concepcion decision, but there is evidence of at least a few mass-individual filings (same law firm filing 200 – 1300 individual arbitrations against the same defendant in the same time period); 3) plaintiffs win at a lower rate in arbitration than in court, and pro se plaintiffs “struggle mightily” in arbitration; and 4) the concerns about “repeat-player bias” are “well-founded” — but those repeat players are both defendants who appear often, as well as plaintiffs-side law firms who appear often.  For example, within the JAMS set of data, the authors report that a consumer’s probability of winning increased 79.9% if it was represented by a “super repeat-player” law firm (as compared to appearing pro se), and an employee’s probability of winning increased 55.1% if he was represented by a “high-level” repeat player firm.  (See pp. 42-43.)  Read this article if you: want to compare JAMS and AAA (on cost and speed); want to see data on how Concepcion affected arbitration filings; or want to see statistical evidence of “repeat player” bias.

Second, “Inside the Black Box” reflects findings from surveys of construction arbitrators, advocates, and industry representatives.  Although some of the survey findings just confirmed what most people would expect (like party-appointed arbitrators are not always neutral), there are some unexpected nuggets.  For example, I found it interesting that 68.5% of construction arbitrators report allowing depositions in “regular” sized cases, and 88.9% of arbitrators report allowing them in large, complex cases.  And 75% of arbitrators allow prehearing subpoenas.  Furthermore “advocates prefer more discovery than arbitrators are allowing in … cases in which claims are below $1 million.”  (p. 59)  Furthermore, the authors say “summary judgment motions in construction arbitrations perhaps have been over-criticized.  If a healthy majority of 63.7% of arbitrators found they were useful half the time or more..it is hard to argue their use should be constrained.” (p. 65)  I also like this one: 44.6% of the arbitrators who responded said that evidentiary objections have no impact on their view of the evidence or their deliberations.  So, stop shouting “Objection: hearsay” in arbitration! Read this article if you: are a construction litigator and want to understand the norms in this industry’s arbitration practice.

Third, “Arbitration in the Americas” reports findings from surveys of arbitration “practitioners” across the Americas.  Amusingly, of the 212 U.S. respondents, 60.45% describe legislators as “having a Low or Very Low understanding of arbitration.”  In keeping with the “Arbitration Nation” study above, “U.S. respondents reported that arbitration in the United States is faster than litigation, with 44.32% describing it as Slightly Faster, and a further 43.24% describing it as Much Faster.” (p. 60)  More surprisingly, “U.S. respondents overwhelmingly described arbitration as on average cheaper than litigation, with 49.19% describing it as Slightly Cheaper and a further 22.70% describing it as Much Cheaper.” (61).  Read this article if you want to compare perceptions of how well arbitration works and is supported in this country with perceptions in other countries.

Fourth, “The Black Hole of Mandatory Arbitration” argues that between 315,000 and 722,000 potential employment arbitrations are “missing in action”.   As the abstract states: “The great bulk of employment disputes that are subject to [mandatory arbitration agreements] simply evaporate before they are ever filed. They are “MIA,” or “missing in arbitration.” That conclusion emerges from a comparison of the tiny number of employment claims that are filed in arbitration with an estimated number of claims one would expect to see given the number of employees who are covered by MAAs and the volume of employment litigation by those who are free to litigate.”  Read this article if you like public policy and are concerned about current SCOTUS jurisprudence.

Fifth, “Running It Twice“, proposes new types of baseball arbitration, in which separate arbitrators (or panels) decide the same dispute to ensure no rogue result.  Read this article if you like shiny new things and sports analogies.

*You didn’t read that wrong; the article’s name is the same as this blog.  I gave them permission.

Happy Thanksgiving all!

The Consumer Financial Protection Bureau released an “Arbitration Study” exceeding 700 pages to Congress this week.  You have likely heard the headlines – most commentators assume that the CFPB will use the study to support an effort to restrict or regulate the use of “pre-dispute” arbitration in financial transactions.  But, let’s not get ahead of ourselves.  The study itself is worth digging into; the CFPB was able to access lots of information that us regular folks cannot.  Indeed, one complaint about arbitration is that it happens inside a black box, out of reach of statistical analysis or scholarly study, and precluding development of legal precedent. Here’s part one of my peek inside that black box, courtesy of the CFPB.

What the Cool Kids Are Putting in Their Arbitration Clauses

About a year ago, CFPB published its findings on the frequency of arbitration agreements in financial agreements.  This report does not add much in that area.  But, it has new information on the features of arbitration clauses that are prevalent in contracts in the industries studied (credit cards, checking accounts, general purpose reloadable prepaid accounts, private student loans, payday loans, and mobile wireless third-party billing).

  • Would you guess that 50% of payday loan agreements and 83% of private student loan agreements allowed their customers to opt out of arbitration? I was surprised. More than a quarter of credit cards and checking account agreements did also.
  • A majority of all types of financial agreements carved out small claims from their arbitration agreements.
  • The AAA is king. It is listed as either the sole provider or an arbitral option in about 9 out of 10 financial agreements (other than student loans). By comparison, JAMS is an option for about half of the agreements (but only 14% of mobile).
  • Roughly 9 of 10 arbitration clauses in these industries preclude class actions in arbitration. Most also stated that if the class waiver is unenforceable, the entire arbitration clause is unenforceable as well. (CFPB calls it the “anti-severability provision.”)
  • What are financial institutions not putting in the agreement? They are not shortening statutes of limitations often, they are not limiting damages very often, they are not authorizing the arbitrator to award attorneys’ fees to the prevailing party often, and they are generally not addressing confidentiality.

What the Public Understands About those Arbitration Clauses

The CFPB surveyed 1007 people about their dispute rights with respect to their credit cards, and found they know *nothing.*  And this should surprise no one.  (I am not pointing fingers.  If you asked me whether I could sue one of my credit card issuers in court, I would not know either.)  The study explains partly why that is: dispute resolution clauses do not factor into a consumer’s choice of credit card.  When all 1007 people were asked what features they considered in acquiring their credit cards, literally no one mentioned the ADR clause.

The 1007 people were asked what credit cards they had, and whether they could sue the company if there was a dispute.  The people who thought they could sue their credit card issuer in court were wrong 80% of the time.

The most surprising thing about the survey results to me were just how passive people are about disputes.  When confronted with a hypothetical example of a credit card refusing to correct a billing mistake, most people would cancel their cards and take no further action. Only 2% of people would consider going to court or talking to an attorney.

In the next post (part two), I will highlight statistics and findings from the CFPB’s comparison of how consumer disputes are resolved in arbitration and how they are resolved in court.

A new survey found that Fortune 1,000 corporations are significantly less likely to arbitrate contract disputes today than they were in 1997.  In the 1997 study, 85% of companies reported using arbitration in commercial contract disputes at least once during the prior three years.  In 2011, however, only 60 percent of companies so reported.  In contrast, the companies’ usage of mediation remained steady at around 80%.

 The most common reasons given by survey respondents (general counsel and senior corporate lawyers) for not using arbitration included: the difficulty of appeal, the perception that arbitrators tend to compromise, the concern that arbitrators may not follow the law, a lack of confidence in neutrals, and high costs of arbitration.  The study, conducted through Cornell’s Survey Research Institute, was co-sponsored by Pepperdine’s Straus Institute for Dispute Resolution, Cornell University, and the International Institute for Conflict Prevention & Resolution (CPR).  (Its results are not currently available on-line.) 

I find it interesting that during this same time period—1997 – 2011—the Supreme Court has been making it more and more difficult for businesses to argue that their arbitration agreements are invalid (consider Buckeye Check Cashing, Rent-a-Center, Concepcion, etc.).  While those two trends may not be causally related, the end result is that the Supreme Court is strictly enforcing arbitration agreements at the same time that corporate counsel are growing less enchanted with arbitration. 

Many organizations and individuals are thinking of various solutions to the problems with arbitration identified in the survey, and legislators are brainstorming statutory solutions.  One interesting proposal to increase transparency about various arbitration programs is from Professor Thomas Stipanowich of Pepperdine University, who proposes an “Arbitration Fairness Index”: an independent system to rate and rank consumer and employment arbitration programs.