The Arbitration Fairness Act of 2013

PGP Mediation Blog by Phyllis G. Pollack

While my alternative dispute resolution focus is generally on mediation, a recent event in the arbitration field caught my attention. On May 7, 2013, Senator Al Franken (MN) introduced S. 878 (http://www.gpo.gov/fdsys/pkg/BILLS-113s878is/pdf/BILLS-113s878is.pdf ) in the Senate while his counterpart Rep. Henry C. "Hank" Johnson, Jr. (Ga-4) introduced H. R. 1844 in the House.(http://thomas.loc.gov/cgi-bin/query/C?c113:./temp/~c1130E0u38) (These identical bills are entitled, The Arbitration Fairness Act of 2013 and are aimed at eliminating mandatory pre-dispute arbitration clauses in employment, consumer, antitrust and civil rights matters so that such individuals are truly free to decide to engage in arbitration if they so desire and only once an actual dispute arises.

Why is this important? On April 27, 2011, the U.S. Supreme Court issued its opinion in AT & T Mobility, LLC vs. Concepcion, 131 S. Ct. 1740 (2011)(http://www.supremecourt.gov/opinions/10pdf/09-893.pdf) in which Plaintiffs Vincent and Liz Concepcion purchased cellular telephone service from AT & T Mobility, LLC. The contract provided that all disputes were to be decided by arbitration on an individual basis; class wide arbitrations were prohibited.

Naturally, a dispute arose over a $30.22 charge; AT &T advertised a free telephone with the purchase of its service but did not state that it would have to charge the sales tax of $30.22 based on the retail value of the "free" telephone. So, plaintiffs objected to the charge and sued AT &T in federal court. Their lawsuit was later converted into a putative class action, alleging false advertising and fraud. AT &T moved to compel arbitration pursuant to its contract with the plaintiffs. The US District Court denied the motion, and the Ninth Circuit affirmed.

The U. S. Supreme Court reversed, holding that under the Federal Arbitration Act, 9U.S.C.§ 1 (http://www.ilr.cornell.edu/alliance/resources/Legal/federal_arbitration_act.html) such contract provisions were valid and that such provisions could prohibit class actions meaning potential plaintiffs must pursue arbitration in their individual capacities only.

One can imagine the impact this ruling has had since its issuance two years ago. All large companies can now compel consumers to file individual arbitration claims to pursue their rights. But, if the claim is like that of the Concepcions'- $30.22- who is going to pursue it and as importantly, what attorney will even handle it?

To change this state of affairs, Sen. Franken and Rep. Johnson have re introduced their respective bills (Earlier versions were introduced in 2012). The Findings in each bill are the same:

SEC. 2. FINDINGS.

The Congress finds the following:

(1) The Federal Arbitration Act (now enacted as chapter 1 of title 9 of the United States Code) was intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power.

(2) A series of decisions by the Supreme Court of the United States have interpreted the Act so that it now extends to consumer disputes and employment disputes, contrary to the intent of Congress.

(3) Most consumers and employees have little or no meaningful choice whether to submit their claims to arbitration. Often, consumers and employees are not even aware that they have given up their rights.

(4) Mandatory arbitration undermines the development of public law because there is inadequate transparency and inadequate judicial review of arbitrators' decisions.

(5) Arbitration can be an acceptable alternative when consent to the arbitration is truly voluntary, and occurs after the dispute arises.

Thus, the purpose of these bills is to prohibit mandatory arbitration in consumer, civil rights, anti-trust and employment matters before the dispute arises. As proposed Section 402 states:'(a) – Notwithstanding any other provision of this title, no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment dispute, consumer dispute, antitrust dispute, or civil rights dispute…. "Thus, no longer could AT &T in its cellular telephone service contracts require a consumer to agree to arbitration should a dispute arise, long before the dispute even arises.

These two bills have been referred to the respective Senate and House Committee on the Judiciary. Whether they will get out of committee or remain there as did their predecessors is anyone's guess. But, I think it is an important development of which we should all be aware.

….. Just something to think about.

                        author

Phyllis Pollack

Phyllis Pollack with PGP Mediation uses a facilitative, interest-based approach. Her preferred mediation style is facilitative in the belief that the best and most durable resolutions are those achieved by the parties themselves. The parties generally know the business issues and priorities, personalities and obstacles to a successful resolution as… MORE >

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