Arbitration: A Cheaper Alternative to Court?
(Story by Carol Thompson) As VNN reported this week, a California resident had signed a Condominium Unit Purchase Sale Agreement (PSA) on or about July 14, 2005, with Palms Place, LLC to purchase a unit at the Palms Place Condominium Hotel and Spa in Las Vegas with the understanding that it was investment property, only to be stonewalled when he asked to see the terms of the rental agreement.
The buyer had made a down payment of $108,150 that, when he terminated the agreement due to Palms refusal to disclose the requested information, was not refunded.
Because of a clause in the PSA, the buyer was forced into arbitration through the American Arbitration Association (AAA). The original intent of arbitration was to be a cheaper alternative than court for both the consumer and the business, employer, or organization.
For the purchaser of this Palms Place condo, arbitration was anything but cheaper. In fact, the accumulated costs are slightly more than the plaintiff was seeking.
An attempt to recoup $108,150 from Palms Place has resulted in an arbitration bill totaling $108,834, an exorbitant fee that would be cost prohibitive for most consumers.
The breakdown shows $19,569 in arbitration costs and $89,265 in attorney fees, billed at the market rate of $350 per hour.
However, the buyer never got to see the actual attorney billings. That’s because the courts generally award based on market rate, not evidence of actual payment, hence a consumer has no way of verifying if they are indeed paying the actual billable hours.
The Dec. 2013 Consumer Financial Protection Bureau Arbitration Study Preliminary Results show that some view the pre-dispute arbitration clauses contained in standard-form contracts as unfair to consumers. “Critics generally focus on three areas. First, they attack arbitration as a dispute resolution process. They contend that it reduces or eliminates procedural protections—such as a right of appeal or access to discovery—that are generally available in court. There are also claims that arbitration may be biased against consumers, and that it may not be as fast or cheap as its proponents claim.
It continues, “Second… critics argue that arbitration clauses may immunize companies from a range of private civil liabilities, such as by reducing the availability of discovery or by eliminating class proceedings. According to this argument, arbitration clauses may undermine deterrence and leave widespread wrongdoing against consumers unaddressed.
“Finally, critics assert that arbitration, which is almost always conducted in private, undermines benefits inherent in the public nature of the court system, such as transparency and the development of clear precedents.”
In contrast, defenders of pre-dispute arbitration clauses take the view that arbitration offers “a faster, more efficient and more cost-effective method of resolving disputes than court litigation.”
The study notes, “According to this point of view, arbitration ‘minimizes the disruption and loss of good will that often results from litigation and… reduces litigation costs. Arbitration proponents also claim that these cost savings inure to the benefit of consumers through lower prices and/or expanded access.’”
The study points out that in court systems the government pays the salaries of judges and much of the cost of administering cases, although the filing fees required when initiating a case may defray a part of these costs. “In arbitration, by contrast, the parties pay all the costs of arbitrating the dispute. As a result, the total up-front cost of filing a claim in arbitration—at least for the parties combined—is typically higher than the up-front cost of filing a lawsuit in court.”
For the California resident, the cost of arbitration far outweighed potential court costs. All told, the buyer is out $216,984 and has nothing to show for it other than an arbitrator’s “binding” decision.
*If you’ve been through the arbitration process and have a story to share good, bad, or indifferent, contact the reporter at [email protected]
(Image: Flickr | ToastyKen)