Arbitration Everywhere, Stacking the Deck of Justice

[The Brain]

Guru mediation?

[alfred russel]

The article is saying exactly the same thing as I did - that the US arbitration system is more costly and less likely to follow precedent. Care you explain how this is "eurocentric" too?

Because I believe the American class action system is an abomination that almost any system--from arbitration to simply doing away with it--would be better than what we have now.

For starters, there is the venue shopping problem. Then you have the problem the real legal determination is made when the court decides to certify a class. Once that is done, almost all cases will settle. Why? Because corporations don't want to be exposed to bad publicity, or the very real risks associated with a jury trial and jury award in a case with a massive number of plaintiffs. Then if you look at how awards are settled, it is difficult to come to conclusions other than that the attorneys to the plaintiffs are most interested in maximizing their payout vs. the payout for their clients, most of whom they will never be in any contact with. It is quite common that the attorneys get significantly more than the entire class they represented put together.

[Malthus]

An article written a few years ago by a friend of mine on this exact topic, comparing the situation in Canada and the US:

Counsel, consumers, and business owners should know that clear statutory language in consumer protection statutes can limit or curtail contractual freedom to choose arbitration.  The limit only applies, however, to statutory causes of action and not common law claims.

In Seidel v. Telus Communications Inc., released March 18, 2011, the Supreme Court of Canada appears to  have changed course on whether arbitration clauses can be invoked to defeat class proceedings. 

In cases released in 2006 (Bisaillon v. Concordia University) and 2007 (Dell v. Union des consommateurs), the Supreme Court concluded that arbitration provisions in collective agreements and online purchase agreements could defeat class proceedings.

The Dell case, however, was soon superseded by consumer protection legislation enacted in several provinces that either invalidated arbitration clauses or rendered them ineffective to preclude participation in class proceedings.  In addition, several lower court decisions sought to limit the ambit of Dell and Bisaillon by interpreting either the new statutes or arbitration clauses in a way that  would allow consumers to pursue class proceedings.

In Seidel, the Supreme Court of Canada considered British Columbia consumer protection legislation, the Business Practices and Consumer Protection Act ("BPCPA") enacted several years before Dell and Bisaillon were decided. Like many consumer protection statutes, the BPCPA creates causes of action based on statutory violations.

Seidel arose out of a cellular phone services contract between an individual consumer and Telus. Ms. Seidel contended that Telus had unlawfully charged and collected some fees in violation of the consumer contract.  She sought certification of a class proceeding on behalf of all similarly situated consumers.  In support of her claim, Ms. Seidel pleaded common law causes of action as well as causes of action under the BPCPA.  Telus sought a stay of the proceeding on the basis of an arbitration clause in the services contract providing that any dispute would be submitted to arbitration, and which waived "any right you may have to commence or participate in any class action against Telus".

In a narrow 5 to 4 ruling, a majority of the Supreme Court rejected Telus' position by holding that contractual freedom to choose arbitration had been limited or curtailed by clear statutory language in the BPCPA. It is to be noted, however, that the Court further held that the statutory language applied only to causes of action brought under the BPCPA, and not to common law causes of action. It would thus appear that common law claims can still be arbitrated and contract language may still be possible to preclude class proceedings based on common law claims. 

Justice Binnie, writing for the majority, based much of his reasoning on the judicial principle of deference to legislative intent. He stated "...the Court's job is neither to promote nor detract from private and confidential arbitration.  The Court's job is to give effect to the intent of the legislature as manifested in the provisions of its statutes."  There was no issue regarding jurisdictional competence of British Columbia to enact the consumer protection law in question. Accordingly, the majority held that the legislative provision granting courts exclusive jurisdiction over statutory causes of action and nullifying any waiver of that right was unequivocal in its intention and must be given effect.

As noted early in the majority decision, however, the underlying issue in the appeal was access to justice and how a class action waiver and arbitration clause, if enforceable, would operate to frustrate that objective.

In an interesting obiter statement, the majority noted the recent U.S. trend to interpret class action pre-dispute arbitration and waiver of class action clauses as unconscionable. With this trend in mind, the majority observed the practical reality that consumer contract arbitration clauses are "often nothing more than a guise to avoid liability for widespread low-value wrongs that cannot be litigated individually but when aggregated form the subject of a viable class proceeding". Overall, the Seidel decision is in keeping with a trend in Canadian case law to promote access to justice when deciding class action forum and procedure.

In April of the this year, the United States Supreme Court released its decision in AT&T Mobility v. Concepcion, a case that also involved arbitration and class action preclusion clauses in a mobile telephone consumer contract.  In a narrow 5-4 ruling, the U.S. Supreme Court decided that the U.S. Federal Arbitration Act pre-empted state law—in that case California—prohibiting enforcement of arbitration clauses inhibiting consumers from pursuing class actions.  The decision in Concepcion clarifies that US companies can continue to rely upon arbitration clauses in standard form contracts to prevent class proceedings.

There are important differences between the issues raised in Seidel and the issues  decided in Concepcion.  The interplay between US Federal and State laws and the role of pre-emption were not in issue in Seidel. In Canada, arbitration statutes are provincial and not federal and arise from the provincial legislatures' jurisdiction over "property and civil rights, in the province." Thus, a court's task is to determine competing claims under two provincial statutes and not a conflict between federal and provincial statutes.

The implications of Seidl for businesses in Canada could be far-reaching.  Canadian companies certainly lack the ability to restrict the availability and scope of class proceedings available to their US counterparts.

https://www.gowlings.com/KnowledgeCentre/article.asp?pubID=2408

[Admiral Yi]

Class actions don't cost the plaintiff anything out of pocket, so to say that arbitration is more expensive doesn't do anything in terms of informing us whether the costs of arbitration are prohibitive for individuals.

[grumbler]

Here's some cost numbers from Public Citizen: http://www.citizen.org/publications/publicationredirect.cfm?ID=7173

I'll admit to being surprised by those numbers.  However, they make sense when explained:

Arbitration costs are high under a pre-dispute arbitration clause because there is no price competition among providers. Companies that want to use arbitration costs as a barrier, to prevent consumers and others from asserting their legal rights, have no incentive to arrange low-cost arbitration services. Instead, it is to their advantage to seek out the highest-cost arbitration providers.

[The Minsky Moment]

Btw, I am assuming (perhaps wrongly) that there is no ordinary venue of appeal from American arbitration courts to common courts - and you can only challenge an arbitration court ruling if it blatantly violates the fundamentals of American legal system. Could any American lawyers comment?

That's correct - very difficult to toss an award.

It's not correct that it is more costly though.  It can be and often is less costly.

[The Minsky Moment]

Some more random points:

+ this is an old story at this point, for better or for worse. 
+ the big problem IMO is killing class actions which means for many cases like this there is no effective remedy.  The legislature could fix this but in the US the legislature is Congress
+ Arbitrators do follow precedent and many are former judges.  But because of the limited appeal possibilities they really don't have to follow the law at all. 
+ That said, I don't think systematic partiality is a problem
+ Arbitration is far more customizable than court litigation and so smart parties can keep costs down.  Doesn't always work that way though
+ The public citizen study focuses on filing fees, which typically are a very small fraction of overall costs.  Yes the state court doesn't charge for clerk time but then again cases drag through for years, discovery is rarely controlled and legal fees mount up much faster than arbitrator charges.

[crazy canuck]

If there was a mechanism to ensure impartiality (like a pool of arbitration companies paid from a pool of funds provided by each company that wanted to include binding arbitration in contracts, with the actual arbitrator chosen randomly from those specializing in that field), then I'd be happier with it. 

In commercial arbitration legislation there is typically a mechanism for an arbitrator to be appointed from a pool of arbitrators if the parties cannot agree on who should be appointed.  I cannot recall a situation where we have had to go to that pool.  It is in the interests of both parties to select someone they have confidence in rather than go with the luck of the draw.  Particularly given the difficultly of appealing an award.

[The Minsky Moment]

If there was a mechanism to ensure impartiality (like a pool of arbitration companies paid from a pool of funds provided by each company that wanted to include binding arbitration in contracts, with the actual arbitrator chosen randomly from those specializing in that field), then I'd be happier with it. 

In commercial arbitration legislation there is typically a mechanism for an arbitrator to be appointed from a pool of arbitrators if the parties cannot agree on who should be appointed.  I cannot recall a situation where we have had to go to that pool.  It is in the interests of both parties to select someone they have confidence in rather than go with the luck of the draw.

I've had a number of cases go to the pool.   Not enough nice reasonable Canadians down here.

[crazy canuck]

If there was a mechanism to ensure impartiality (like a pool of arbitration companies paid from a pool of funds provided by each company that wanted to include binding arbitration in contracts, with the actual arbitrator chosen randomly from those specializing in that field), then I'd be happier with it. 

In commercial arbitration legislation there is typically a mechanism for an arbitrator to be appointed from a pool of arbitrators if the parties cannot agree on who should be appointed.  I cannot recall a situation where we have had to go to that pool.  It is in the interests of both parties to select someone they have confidence in rather than go with the luck of the draw.

I've had a number of cases go to the pool.   Not enough nice reasonable Canadians down here.

Or it could be the arbitrators making up the pool are better qualified so the risks of going to the pool are less?

[The Minsky Moment]

Further comment on the Public Citizen analysis: they seem to have calculated the fees based on commercial parties operating under the commercial rules.  For AAA, for example, the filing fee for individuals filing consumer disputes is capped at $200 (the business it liable to pay much more).

[Malthus]

Arbitration can be a great option for dispute resolution between businesses. It is a terrible option for dispute resolution between a business and a customer (as is ordinary civil litigation) - that's the role of class actions. The fix, as everyone knows, is consumer protection legislation.

The advantages of arbitration are many - the parties can to an extent pick the procedures they want, making it more or less formal and elaborate depending on circumstances.

In fact, as a very sweeping generality, arbitration tends to be preferred when two parties are roughly equal in bargaining power, otherwise not. Hence concerns raised with family law arbitration, and with consumer litigation.

In Canada at least, there is no lack of reputable former judges acting as arbitrators for big commercial cases, and it is pretty common for parties to be able to agree on one: in fact, that has happened in every arbitration I have been a part of. 

[grumbler]

Further comment on the Public Citizen analysis: they seem to have calculated the fees based on commercial parties operating under the commercial rules.  For AAA, for example, the filing fee for individuals filing consumer disputes is capped at $200 (the business it liable to pay much more).

They comment specifically on that.  The cap applies only (according to them) on post-dispute arbitration.  When parties agree to arbitration pre-dispute, the commercial rules apply (again, according to them).

More cost data, though not for the kinds of cases being discussed here: Inside Counsel http://www.insidecounsel.com/2012/12/06/which-costs-less-arbitration-or-litigationargues that corporate arbitration costs more and takes longer than litigation.  I'm not sure how random their 19 cases are, though.

[crazy canuck]

The problem is the people trying to make the comparisons are not going to get good data.  One of the many reasons parties choose arbitration is confidentiality.  There are cases where even the fact of the dispute will never be known publicly - never mind how cost effective the resolution was.

[The Minsky Moment]

Also the sample size is way too small.
The basic conclusion is right though - arbitration provides for more customizability, but it isn't necessarily faster or cheaper in a given instance.

grumbler - not sure what the pre-dispute comment means.  They seem to be suggesting that consumers are forced into the commercial rules part.  If that is the claim, it conflicts with the findings of the CFPB report to Congress on that issue.  That report also indicated that many consumer arbitration clauses have additional fee caps where the company pays or advances admin fees.