The ABC’s of Arbitration
When dealing with the ABC’s of arbitration, sometimes it’s what you don’t see that can hurt.
Arbitration occurs when a consumer is, or feels, wronged and wants to take legal action. Arbitration clauses, contained in many contracts and agreements, give up a consumer’s right to go to court, and instead mandate binding arbitration.
These clauses often specify a particular arbitration company, and often it is the American Arbitration Association (AAA). So, right from the get-go, the consumer is at a disadvantage. How is it Company X decides to choose the American Arbitration Association, one of the largest arbitration organizations in America? Is there some sort of agreement between AAA and each specific company? No company is going to recommend and arbitration firm that consistently rules against them.
Next comes the selection of said arbitrator. AAA provides a list of arbitrators, and both parties must agree on one. The catch: If there’s an arbitrator with a conflict-of-interest, it may be unbeknown to the unsuspecting consumer who is putting their trust in AAA. It would behoove the consumer to do their own research because one never knows what type of conflict will exist that wasn’t disclosed. And dig deep because some may not be so obvious.
Is AAA aware of potential conflicts? We don’t know the answer to that because, when contacted Friday, AAA spokesperson Michael Clark was out of the office until Tuesday. We’re sure he’ll get back to us with the answer.
When AAA sends the list of potential arbitrators, you’ll see the hourly cost of each, along with the cost of any expenses they may incur. Some want travel fees, others don’t. Some may want you to buy lunch.
What most consumers don’t realize is that by the time they’ve been through the arbitration process they may be buying the arbitrator much more than lunch. Try a Mercedes or a Corvette.
The “cheaper alternate to court” can be one of life’s most costly rides. As we’ve previously reported, a California man got so much more than he bargained for when he went to arbitration over a Palms Place condo sale gone bad (bad as in Palms Place failed to provide all the necessary information to complete the purchase and was far behind in completing construction).
Not only did the man lose the $100,000 condo deposit he had gone to arbitration to reclaim, but the arbitration costs exceeded his deposit. Nearly $90,000 was awarded to Palms Place for legal fees and the man has no proof that the $90,000 was actually paid by Palms to their lawyer. Of course, everyone wants to hand over hard-earned cash to a third party with no proof of payment.
With arbitrators charging anywhere from $250-$500 per hour and up, the consumer may shy away from arbitration and just let the wrong remain wrong. Surrendering before the battle is waged is often the “cheaper alternative.” One thing is certain, whoever coined the phrase “cheaper alternative” had never been through the arbitration process, otherwise the phrase would be one of execration.
It’s difficult to assert just how arbitration is the “cheaper alternative.” There are arbitration fees, split by the parties, that can cost more than commencing a lawsuit and if the winning party is awarded legal fees the losing party could be forced into bankruptcy. There probably aren’t many consumers who walk into an arbitration hearing expecting to leave with a $90,000-plus tab.
That’s not the only kicker. Arbitrators don’t have to follow the letter of the law when making a ruling. It’s amazing that our governing hierarchy would even support a system that’s excused from following those very same laws that they’ve crafted.
It’s time for Congress to wake up (if that’s possible) and realize that arbitration is nothing more than the greatest hoax played on the American people.