Wednesday, November 7, 2007

Wall Street Journal Against Congress's Limiting Arbitration

The Wall Street Journal has an editorial today criticizing attempts by Ralph Nader, Public Citizen, and trial lawyers to take away the ability to arbitrate.  According to the Journal, Congress is considering not only limiting the future ability to enter into arbitration agreements, but also possibly undoing various prior arbitration agreements, which could trigger new class actions.  Here's an excerpt from the editorial -- Party at Ralph's:

We're old enough to remember when Naderite groups like Public Citizen were embarrassed by their ties to trial lawyers. No more. This week in Washington, the famous "consumer" group, which has long resisted efforts to identify the sources of its funding, is rolling out the red carpet for America's plaintiff attorneys. Attendees of the Consumer Rights Litigation Conference are cordially invited to Saturday night's cocktail reception at Public Citizen headquarters, which a conference brochure describes as "an elegant old Dupont Circle Victorian mansion . . . generously loaned to us for this special event."

No word yet on what the famously ascetic Ralph Nader thinks about standing up for the little guy by sipping cabernet at a Dupont Circle manse, but what's clear is that the trial lawyers will have plenty to celebrate. That's because they'll be visiting Congressional offices tomorrow and Friday to check on the progress of pro-lawsuit legislation, and they will not be disappointed. Bills gathering momentum in both houses are anything but subtle in their support for more class-action lawsuits. Tillinghast Towers Perrin estimates that litigation costs the U.S. more than $260 billion a year, and that figure is heading due north.

The Democratic strategy is to attach an anti-arbitration provision to nearly every new law in order to limit non-lawsuit dispute settlement. Thus a House lending bill this week bans pre-dispute arbitration agreements related to mortgages, another House bill bans them in cases involving whistleblowers, and the Senate farm bill bans them even in meatpacking contracts.

The mother of them all is a bill that lunges to fulfill the trial bar's long-cherished dream: prohibiting all Americans from voluntarily agreeing at the start of any business relationship to settle disputes without litigation. Arbitration, which avoids the cost and time of going to court, has proven to be a popular form of alternative dispute resolution. Even lawyers concede its virtues. In 2003, an American Bar Association survey found that 78% of lawyers "believe that arbitration is generally timelier than litigation, and 56% feel it is more cost effective."

I would argue that arbitration clauses can be an important check on the inadequacy of court processes.  If individuals freely agree that an alternate dispute regime -- i.e., arbitration -- should govern their dispute, then the courts should honor their contractual choice.  For me, the key issue is determining whether both parties actually agreed to arbitration -- whether there was a meeting of the minds on that issue.  Indicia of acceptance might include prominent reference to arbitration in any contract, as well as oral discussion of arbitration prior to the transaction.


Class Actions, Procedure | Permalink

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