arbitration clause
Arbitration: An Unfair Advantage
July 25, 2014  //  By:   //  Investigative Reports, Ripoffs & Scams  //  1 comment

 (Story by Carol Thompson) Many Americans think that they will never need to use the arbitration process. If they are wronged by an employer or a company they do business with, they believe they can resolve their dispute in a court of law.

That’s often not so—something only those who read the fine print on credit card terms, car purchases, cable and Internet service plans, cell phone plans, health insurance plans, and in employee handbooks are aware of.

Many of the contractual transactions made today have a buried forced arbitration clause that allows corporations to circumvent the laws that are meant to protect the consumer and employee.

The American Arbitration Association (AAA) handles thousands of dispute cases each year, and for the uneducated consumer, it can often result in thousands of dollars out of pocket and a lost case, and for those involved in arbitration with AAA, they may find themselves up against a stacked deck.

The American Arbitration Association owns millions of dollars in stocks and bonds in some of the companies whose disputes the arbitrators hear. The AAA’s 2012 IRS 990 filing shows the association earned $6.4 million in investment income that year.

It has been reported that some corporations buy “memberships” in the association, and their executives sit on the association’s board of directors.

Research has found that some arbitrators may succumb to the pressure of ruling for the clients who use their services repeatedly, known in the industry as “repeat players.” Studies have shown that repeat players are favored in a large percentage of cases.

In 2012, the AAA reported 62.3 million in dispute resolution revenue and seminar and other education program revenue at over $2 million.

President and CEO William Slate’s salary is listed at $573,579 with “other income” listed as $42,783.

The AAA operates as a not-for-profit public charity, although many who have used the dispute resolution service claim it’s anything but charitable.

Jon Perz gives a detailed account of his experience with AAA on his website.

On February 16, 2007, the San Diego resident purchased a “certified” used 2002 Ford Escort for $12,000 from Mossy Toyotaduring their “red tag sale.”

When he took the car for a test drive, he noticed a vibration, and asked about it before purchasing the car. He was told that the idler needed to be adjusted and it could be taken care of if he brought the car back the next day when the shop had time.

He took them at their word and bought the car. It came with a 90-day, 3,000 mile bumper-to-bumper warranty and he purchased an extended warranty.

Perz had unknowingly signed the contract with a clause that required any dispute be submitted to an arbitration program chosen and paid for by Mossy Toyota.

Stuck with a lemon, Perz hired an attorney who filed a suit. Mossy Toyota filed a motion to go to arbitration before the American Arbitration Association.

His attorney found out that the one arbitrator who was going to hear Perz’s case had a history of representing car dealers. Another had a history of ruling for the company and against the consumer on forty different cases.

Perz alleged that Mossy refused to pay to initiate the arbitration proceedings as required by the contract.  Under the AAA rules, the company was supposed to pay $750 to start the arbitration process moving

Instead, they insisted that Perz pay up-front, contrary to AAA rules. His attorney tried time and time again to have the case heard.

AAA finally responded, and dropped Mossy for not following their policies, but it had taken AAA seven years to make the determination and notify Perz. In the meantime, he was obligated to pay off the loan on a car deemed totally useless.

Perz’s case finally landed in the hands of Judicial Arbitration and Mediation Services, where he lost the case.

A search of AAA on the Internet will result in numerous stories such as Perz’s.

The only recourse for a lost arbitration is an appeal, and one that can be more costly than the damages sought.

Monday: Arbitration: How one man is appealing the system

(Image: Flickr | fromthevalleys)


About the Author :

Carol Thompson is a veteran investigative reporter residing in central New York. She spent 23 years with a local newspaper, The Valley News, before leaving for the Syracuse New Times, and now, VNN. Thompson has won dozens of first-place awards for investigative reporting and was the 2006 recipient of the Syracuse Press Club’s prestigious Selwyn Kershaw Professional Standards Award. Thompson’s reporting has resulted in the arrest of public officials and has prompted policy changes. She uncovered two money laundering schemes that traveled the globe and resulted in the indictments of several developers.

  • Jon Perz

    Interim Song Beverly Ruling: Dated September 15, 2014

    Breach of Express Warranty and Implied Warranty of Merchantability (Song Beverly Act)

    Mossy included a limited express warranty (90 days or 3000 miles) for 100% of the parts and labor costs on engine and transmission repair. The panel finds this would include the vibration problem. Mossy made two attempts to repair the vehicle with no success whatsoever and then informed Mossy it could not be repaired and was, at any rate, “normal” for this vehicle. In the event a warranted defect substantially reduces the value, use or safety of a vehicle, the seller must replace or repurchase the vehicle, or otherwise make restitution to the purchaser. This was a vehicle purchased at retail, for Perz’ personal use.

    Perz made several requests of Mossy to repair the defect, and Mossy agreed to attempt the repair twice. Mossy was given adequate opportunity to repair or replace or make restitution. It was unable to do the first and refused to do the others.

    Perz has proven the elements necessary to prevail on this cause of action.

    The implied warranty of merchantability requires that the vehicle be fit for its ordinary use, in this case personal transportation to and from work. The only description of the condition of the vehicle is that it was unsafe to drive. Mossy’s attempt to “reduce” the vibrations at stops by putting it into neutral corroborates the intensity of the vibrations and the unsafe measures which had to be taken to reduce the vibrations and allow for accurate vision through mirrors and the windshield. No opportunity to repair is required, though several opportunities were given.

    Perz has proven the elements necessary to prevail on this cause of action. Under the Song-Beverly Act. The panel is authorized to award double damages on the Song-Beverly causes of action, if Mossy’s failure to act was willful, which it was. (Civil Code section 1794(c)). Perz is entitled to an award of fees and costs on the Song-Beverly causes of action (Civil Code section 1794(d)).

    Perz is entitled to reasonable attorney’s fees and costs.

    JAMS ARBITRATION NO. 1240021161