For almost 100 years, arbitration has been a cornerstone of the U.S. legal system. It has allowed for efficient and effective resolution of millions of cases covering virtually every facet of our lives from employment to health care to insurance to financial services without lengthy and expensive trials.
The unbridled success of this system is not, however, universally appreciated. Trial lawyers have made little secret of their disdain for arbitration which often prevents them from cobbling together massive (i.e., lucrative) class actions and have waged a long-running “hit and run” campaign against it in legislatures and courts across the country.
One needs to look no further than the Association of Trial Lawyers of America (ATLA) Web site for their arbitration crie de guerre: “How Companies Are Taking Away Our Rights,” and “Defeating Mandatory Arbitration Clauses: What’s A Lawyer to do When Boilerplate Arbitration Clauses Bar the Courthouse Door?” In the past, these efforts have all been directed at one goal creating the impression that voluntary arbitration clauses amount to an inferior form of justice.
But now, these lawyers have found a new vehicle to achieve their objectives a “Trojan Horse” made of paper, not wood that will serve them well in their continued efforts to plunder American business.
S. 1020, the proposed Motor Vehicle Franchise Contract Arbitration Act, and its inevitable progeny, has the potential to spur a new avalanche of unnecessary class actions and frivolous mass torts even in cases subject to arbitration clauses thereby unearthing a new mother lode of contingency fee income for billionaire barristers.
Introduced to address auto dealers’ dissatisfaction with arbitration provisions in their contracts with auto manufacturers, this proposed law that sped through the House earlier this month, will set a terrible precedent and greatly aid the plaintiffs’ trial bar campaign to undermine arbitration. At first blush, the bill, which boasts more than 50 co-sponsors in the Senate, appears as benign as its name suggests a measure that would make the election of arbitration as a means to settle contract disputes both fair and voluntary. But this fast-moving legislation which would be the first exception to the Federal Arbitration Act in its 85-year history is anything but benign. It would allow parties to certain contract disputes to reject the use of arbitration as a means of settling the controversy, after the dispute has arisen. In other words, a party signing a contract containing a clause requiring arbitration could unilaterally insist that disputes be resolved by an expensive court trial after the fact.
While S. 1020 appears to apply only to contracts between automobile dealers and manufacturers, it is only a matter of time before trial lawyers and their allies join certain Members of Congress who are already asking:
Why should these contracts be singled out for different treatment? Why shouldn’t parties to all agreements be given the same degree of flexibility? If an agreement to resolve disputes through arbitration, entered into voluntarily between two savvy commercial enterprises is a bad idea, shouldn’t the same be true of agreements between unsophisticated consumers and commercial enterprises? If politicians answer all these questions in favor of the trial bar, and further undermine voluntary arbitration contracts, the consumers and shareholders in industries from credit cards to real estate will end up footing the bill.
The only certain outcome from passage of this seemingly narrow legislation is that the plaintiffs’ trial bar will take it for a lucrative test drive. The legislation has little to do with protecting the little guy from the imagined evils of arbitration, and everything to do with opening up new markets for trial lawyers.
The litigation created by this legislation and its inevitable successors has the potential to devastate our vibrant national economy with considerable costs borne by individual consumers, employees and shareholders. Whatever the auto dealers’ motivation, their proposed law has morphed into a Trojan horse, which the trial lawyers will exploit to expand the litigation-as-lottery mentality that is plaguing our civil legal system.
The Senate should look this gift horse square in the mouth before it’s too late. It doesn’t take Cassandra to recognize that hidden deep inside S. 1020 is a phalanx of trial lawyers ready to plunder America’s economy at our expense.
James Wootton is president of the U.S. Chamber of Commerce’s Institute for Legal Reform.