The Advantages of Arbitration

Andrew Pincus, a partner at the law firm Mayer Brown in Washington, argued in the Supreme Court on behalf of AT&T Mobility in the Concepcion case. His practice focuses on Supreme Court and appellate litigation.

The Supreme Court’s decision in AT&T Mobility v. Concepcion, handed down a year ago, was greeted as a “game-changer” that could “end class-action litigation in America as we know it.”

Forbes said, “If the ruling is implemented broadly – as is likely – it will represent a monumental victory for the business community.” The New York Times, in an editorial, criticized the decision, asserting that the court had provided corporations “with a model of how they can avoid class actions.”

Although class actions remain alive, the Supreme Court’s ruling is transforming the way disputes are resolved throughout the country.

Companies increasingly are turning to arbitration – in their customer agreements, supplier agreements and employment agreements. Some are even considering inclusion of arbitration agreements in their securities offerings.

Before the Concepcion case, complaints about the cost and inefficiency of the United States litigation system were widespread, but relatively few companies embraced arbitration. They feared courts would find arbitration remedies to be an addition to, rather than a replacement for, class actions.

The decision in the Concepcion case changed all that. Although the dust has not completely settled, companies can be much more confident that a fair arbitration system will substitute for judicial litigation, and not open the door to both litigation and arbitration.

The Supreme Court ruled that an arbitration contract could not be invalidated just because it included a provision prohibiting class actions. Businesses virtually always include such provisions because arbitration is by nature a remedy for a particular individual’s claims.

And companies that provide arbitration procedures – as a result surrendering many defenses available in court – do not want to have to handle judicial class actions, too. (The Supreme Court’s decision permits invalidation of arbitration agreements on other grounds, including if the arbitration provision is hidden from the customer, designates a biased decision maker or requires arbitration in an inconvenient location.)

Plaintiffs’ lawyers were apoplectic and sought to narrow the legal effect of the court’s decision, while at the same time mounting a policy assault on the “pro-business court,” accusing it of preventing consumers and others from getting a fair decision on their claims.

The initial efforts to narrow the Concepcion case were uniformly rejected. For example, AT&T’s contract with its wireless customers had special pro-consumer provisions; AT&T agreed to pay all of the arbitration fees for small claims, and to provide special bonuses, including double lawyers’ fees, if a claimant recovered an amount greater than AT&T’s settlement offer. But lower courts have applied the Concepcion decision in dozens of cases in which arbitration contracts lacked these features.

The newest field of battle is federal law, and the preliminary results are mixed. Some courts have said that an arbitration clause with a class waiver cannot be enforced if the plaintiff proves that a federal antitrust claim or wage-and-hour claim can only be litigated effectively in a class action. But other courts have reached the opposite conclusion in decisions that are much more faithful to Concepcion.

The Supreme Court, meanwhile, continues to decide cases involving arbitration issues. It ruled in favor of arbitration in all three of the cases in its current term, two of them unanimously.

Federal regulators are also getting involved. The National Labor Relations Board, in a surprising reversal of a prior decision by its own general counsel, said that including a class waiver in an employment contract constituted an unfair labor practice. That decision has been appealed to the courts. And the new Consumer Financial Protection Bureau just began a study of arbitration required by the Dodd-Frank Act, which also granted the bureau power to ban or regulate arbitration in consumer agreements within its jurisdiction.

The policy attack on arbitration relies on unjustified stereotypes – an imaginary court system that is efficient and accessible and an imaginary arbitration system in which businesses pick biased decision makers and set whatever rules they want. In fact, ordinary people cannot access the courts, with their byzantine rules and time-consuming delays, and most legal injuries are too individualized and too small to attract a lawyer’s assistance. Arbitration provides a needed alternative in which the fairness of the process is protected through judicial oversight mandated by existing law.

Plaintiffs’ lawyers like to argue that class actions are essential to provide compensation and deter wrongful conduct. But the vast majority of class actions produce little compensation, and most corporate officials view them as a “cost of doing business,” not a badge of dishonor. Deterrence comes from government enforcement and, increasingly, from the use of social media in which the threat of brand damage is used as a “stick” to reform corporate behavior.

Lawyers are taught that the judicial system, as it exists in theory, is the best way to resolve disputes. But the reality of our courts today does not square with the theory. We need the actual increase in access to justice that arbitration provides. 

Source: http://dealbook.nytimes.com/2012/05/24/the-advantages-of-arbitration/