NY Times exposes arbitration flaws

By: The VNN Team  //  Arbitration

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A New York Times expose on forced arbitration has brought both praise and criticism from national media, lawyers and organizations.

In a three-part series, the Times pointed out the flaws of a system that prevents consumers from taking disputes to court and how arbitration often favors business.

The Times examined records from more than 25,000 arbitrations between 2010 and 2014 and interviewed hundreds of lawyers, arbitrators, plaintiffs and judges in 35 states, uncovering many troubling cases.

“Behind closed doors, proceedings can devolve into legal free-for-alls. Companies have paid employees to testify in their favor. A hearing that lasted six hours cost the plaintiff $150,000. Arbitrations have been conducted in the conference rooms of lawyers representing the companies accused of wrongdoing,” the Times reported.

The story also pointed out the high cost of arbitration for the consumer. As reported in Veritas News Network, a California resident was ordered to pay over $100,000 in legal fees (add link) in an arbitration hearing against George Maloof and Palms Place condominiums.

Not only was the resident ordered to pay the legal costs for Maloof, but it was later learned that the arbitrator in the case, Thomas Ryan, may have had a conflict-of-interest.

The American Arbitration Association and JAMS, the country’s two largest arbitration firms, said in interviews with the Times that they both strived to ensure a professional process and required their arbitrators to disclose any conflicts of interest before taking a case.

However, it’s up to the consumer to uncover any potential conflicts. The arbitrator must disclose any potential conflicts, however, if he or she fails to do so, the hearing will go on with the parties not knowing if one exists. Finding out after the fact does no good as far as the arbitration organizations are concerned, leaving the matter to be heard in court.

Arbitrators are granted the same immunity as judges; hence, exposing a conflict after-the-fact leaves little recourse for the consumer.

When plaintiffs have asked the courts to intervene, court records show, they have almost always lost. Saying its hands were tied, one court in California said it could not overturn arbitrators’ decisions even if they caused “substantial injustice,” according to the Times’ story.

It continued, “For companies, the allure of arbitration grew after a 2011 Supreme Court ruling cleared the way for them to use the clauses to quash class-action lawsuits, the Times reported. “Prevented from joining together as a group in arbitration, most plaintiffs gave up entirely, records show.”

The story has been met with mixed reaction. Those in favor of arbitration have challenged the investigative reporting process of the Times reporters. Those who oppose arbitration have lauded the report.

Arbitration has become at the center of attention following a March report released by the Consumer Financial Protection Bureau. The agency found many faults with the arbitration process.