Consumer Law

Jeffrey Stempel on Mandating Minimum Quality in Mass Arbitration

By Jeff Sovern

Jeffrey W. Stempel of UNLV has written Mandating Minimum Quality in Mass Arbitration, 76 Univ. Cincinnati L. Rev. 383 (2008).  Here's the abstract:

The Supreme Court's decision in McMahon and its progeny has led many businesses and employers to embrace what was once deemed a localized, industry-specific practice. The "new" or "mass arbitration" only mildly resembles the traditional system employed by niches in industry for settling commercial matters among commercial actors. While the "old" system involved parties who were relatively equal in bargaining power and knowledge, these systems for mass arbitration lack a freely entered bargain and resemble more closely, contracts of adhesion. Privatized arbitration resolves issues of both statutory and substantive law, and there is a strong argument, given the inexperience of the non-drafters, to impose both procedural and substantive due process controls on the system. The players arguably use arbitration as an alternative to litigation because of its efficiency and low costs as compared with litigation in the courts. However, the system cannot provide an equal forum for dispute resolution unless the relative outcomes are arguably the same. Otherwise, the system fails society's expectations of fairness, morality, effectiveness and market stability.

Several strides have been made, despite the Supreme Court's insistence that privatized arbitration is a fair system, to ensure that privatized arbitration produces fair results. Courts have invigorated the doctrine of unconconscionability to review arbitration clauses imposed on inexperienced players, judicial review of arbitration agreements, creation of due process protocols (both an Employment Protocol and Consumer Protocol), and various organization (AAA, JAMS) standards. While these advancements may better the system, they are of no use without some kind of lawful, meaningful enforcement. In particular, this article addresses the effect these concerns have had on securities arbitration. Securities investments have not declined, indicating that perhaps, the system is viewed as a fair means of resolution.

Even if the system is regarded as being beneficial to the market itself, it lacks the moral soundness necessary to be supported fully by the public and the legal community. To this end, it is suggested that the system provide neutral, quality, and independent arbitrators, provide equal access to sufficient information, eliminate unconscionable clauses (distant venue, high costs, one-sided arbitration rules), eliminate jurisdiction clauses that fail to provide adequate procedural and substantive due process, provide fairness in costs and fee shifting, allow the full range of remedies available in litigation, provide for equal access to representation and the legal market, and provide a meaningful, effective standard of review. Legislative authority may be the best solution for overall mass arbitration, but for securities arbitration, the SEC provides a legitimate, authoritative agency which could arguably effectuate these standards in a meaningful manner.

Full post as published by CL&P Blog on January 02, 2009 (boomark / email).