Binding Arbitration Stories at Techdirt.

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In 2011, we wrote about a troubling Supreme Court decision in AT&T Mobility v. Concepcion, the case that basically said it’s perfectly fine for companies to put in place “binding arbitration” clauses, which disenfranchise people from taking a company to court for some kind of wrongdoing . As I noted at the time, since taking a series of officiating courses in college, I have been fascinated by the process, which sounds like a good idea. But this is yet another case where theory and reality don’t necessarily match.

the the theory is that arbitration is a cheaper and more efficient way to settle disputes between two private parties. Rather than subjecting yourself to an overburdened and slow legal system with tons of rules and limitations, you appeal to a “neutral” referee who can help you go through both sides of the story and decide who is right. the problem is in reality. In B2C business, companies win almost 97% of the time. Think about it a bit. It’s not hard to see why: arbitrators are usually chosen jointly by both parties, but it’s the companies that are going to keep coming back for more arbitrations, and if an arbitrator rules against them, they won’t. not even be on future lists at all. It doesn’t take a game-theoretic genius to recognize that the umpire will be under enormous pressure to side with the company, and the stats back that up.

This weekend, the NY Times dove deep into the mess that this private legal system known as binding arbitration has become, demonstrating horror story after horror story of how the system has failed. ordinary people for the benefit of big business. Basically, the fears I wrote about four and a half years ago have come true. As we noted at the time, we agree that the class action court system in the United States is broken, but replacing it with private arbitration is clearly a much worse solution that would certainly allow companies to get away with it. shoot regularly with horrific behavior, leaving individuals with virtually no recourse.

The Times story further supports the idea that arbitrators are under pressure to side with the corporations, even making it admit that:

But in interviews with The Times, more than three dozen arbitrators described how they felt beholden to the companies. Beneath every decision, the arbitrators said, was the threat of losing business.

Los Angeles arbitrator Victoria Pynchon said the plaintiffs had an inherent disadvantage. “Why would a referee deal with someone he’ll never see again? ” she says.

The article is full of story after story after story of crazy things happening in arbitration situations that would never be allowed in real courts.

Behind closed doors, proceedings can degenerate into a legal fray. Companies have paid employees to testify on their behalf. A hearing that lasted six hours cost the plaintiff $150,000. Arbitrations were conducted in the boardrooms of attorneys representing the companies accused of wrongdoing.

Winners and losers are decided by a single arbitrator who is largely free to determine how much evidence a claimant can present and how much the defense can withhold. To deliver business-friendly outcomes, some arbitrators have twisted or outright ignored the law, as interviews and records show.

In one of the key examples (although there are many) in the article, this story is revealed:

For Ms Pierce, the most astonishing moment came when her lawyers asked Mr Kalogredis to impose sanctions on the defense for breaking discovery rules and destroying evidence. He fined the defense $1,000 after investigating the case, then charged Ms Pierce $2,000 for the time it took her to look into it.

There is a lot more madness reading the article. Again, I’m not a fan of class actions, in general. The vast majority of them tend to be hodgepodges to help lawyers cash in, rather than actually helping class members. But this problem can be solved in other ways rather than forcing people to give up their right to take a dispute to court through a “binding arbitration agreement” under terms of use that no one actually reads.

As one lawyer notes in the article, the whole arbitration process is corrupt because it is strength on the people. If two parties voluntarily agree to go to arbitration, that’s one thing. But that’s not what’s happening.

And this problem does not only concern companies and individuals. As we discussed, trade agreements like the TPP and TTIP have something we call corporate sovereignty, and which is officially called Investor State Dispute Settlement (ISDS). In reality, it is simply an “arbitration” system for disputes between companies and countries – where arbitrators will often face the same pressures to side with companies over countries (at least one hopes that countries will have a bit more bargaining power). As the NY Times article details, businesses have learned to play this game pretty well over the past few years, and they should be excited about the possibilities of doing so on a larger scale:

Unfettered by strict legal rules against conflicts of interest, companies can direct cases to friendly arbitrators. In turn, interviews and records show that some arbitrators cultivate close ties with companies to do business.

Some relationships are more subtle, as in the case of the arbitrator who went to a basketball game with the company’s attorneys the day before the proceedings began. (The company won.) Or that of the man overseeing an insurance case brought by Stephen R. Syson in Santa Barbara, California. sports cars after having lunch together. (He lost.)

Other potential conflicts are more explicit. Arbitration records obtained by The Times showed that 41 arbitrators each handled 10 or more cases for a company between 2010 and 2014.

The justice system is far, far, far from perfect. But a secret, private, corporate-rigged justice system? It’s much worse.

Filed Under: Arbitration, Binding Arbitration, Private Court System, Slanted Scales

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