Report on Second Hill Hearing on Arbitration Fairness Act
On Thursday, October 25, 2007, the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law held its second hearing on H.R. 3010, Rep. Hank Johnson's Arbitration Fairness Act. (This Subcommittee has jurisdiction over the bill.) H.R. 3010 would ban the use of pre-dispute binding mandatory arbitration in consumer, employment, franchise and medical contracts. (The first hearing was held on June 12th. I testified at it, and my testimony and a transcript of the hearing can be found on the Public Justice website, www.publicjustice.net.)
Three members of the Subcommittee attended the hearing. The first is Subcommittee Chairwoman Linda T. Sanchez. Rep. Sanchez has not yet co-sponsored the bill, but she spoke very sympathetically towards the situation of consumers and employees who have been treated poorly in mandatory arbitration systems. It also can’t be understated that Rep. Sanchez showed that she has put a lot of time into understanding the details of the issue, and she (along with her staff) have obviously put a great deal of work into interviewing and locating witnesses and giving both sides an opportunity to develop an extensive record. The second is Rep. Johnson, the sponsor of the bill, who is a courtly freshman representative from Georgia and a powerful orator. The third member was Ranking Subcommittee member Chris Cannon, who is a huge and uncritical fan of mandatory arbitration. In the course of carrying the water of the Chamber of Commerce on the issue, Rep. Cannon’s duties apparently include trying to craft personal attacks on anyone who comes forward with an individual story of having been abused by mandatory arbitration.
There were two panels. On the first panel:
Laura MacCleery, Director of Public Citizen's Congress Watch Division, who spoke about Public Citizen's report summarizing more than 34,000 arbitrations handled by the National Arbitration Forum in California, and who also spoke in some detail about the problem of arbitration clauses that ban class actions. I have written in several forums that our law firm’s experience (interviewing hundreds of consumers, and dozens of consumer lawyers, strongly supports the conclusions of Public Citizen’s groundbreaking report). Laura spoke with fervor and energy, and was very articulate. Rep. Cannon tried to get her to admit that Public Citizen’s report is very limited in scope, but Laura pointed out (correctly) that it covered EVERY SINGLE case that the National Arbitration Forum reported handling in California over a period of several years.
Richard Naimark, Senior Vice President of the American Arbitration Association. He spoke about AAA's Due Process Protocols, and steps that AAA has taken to try to make arbitration more fair. As the lead Republican/Chamber witness opposing the bill, Naimark was an excellent choice, because AAA’s conduct compares favorably with that of the National Arbitration Forum. Nonetheless, Chairwoman Sanchez asked Naimark some hard questions about how it was that the AAA had decided that health care cases such as medical malpractice cases were too important to be the subject of binding pre-dispute arbitration clauses, but that employment civil rights and consumer protection cases were not sufficiently important. Naimark responded that medical cases were qualitatively different, but Rep. Sanchez was not appeased. She pressed him and noted that civil rights and consumer cases seemed very important to her as well. One notable element of Mr. Naimark’s testimony was that he openly acknowledged the case law setting forth the incredibly narrow scope of judicial review of arbitrators' decisions, and he accepted the statement that arbitrators’ decisions are not subject to meaningful judicial review. (The NAF’s Executive Director, by contrast, has repeatedly publicly tried to pretend that this huge body of published case law does not apply to the NAF.)
Former Georgia Governor Roy Barnes, who is now an attorney for consumers, spoke about the way arbitration clauses are used to protect pay day lenders, even when their actions are criminal. He described how the payday lending industry operates with passion and energy, and then spoke about how the U.S. Supreme Court’s decision in Buckeye Check Cashing v. Cardegna leaves to arbitrators the question of whether a contract violates a state’s criminal law. In the course of questioning, even Rep. Cannon appeared to agree with Governor Barnes that the Buckeye case presents a ridiculous rule of law that Congress should address.
The final witness was Ken Connor, a lifelong Republican activist and movement conservative, with close ties to former Florida Governor Jeb Bush (he was Bush’s attorney in the Terry Schiavo case, for example) and a former head of the Family Research Council. In his private practice, Mr. Connor represents victims of malpractice and abuse in nursing homes, and spoke for several minutes about horrific cases of abuse that he's encountered in nursing homes (detailed descriptions of bruises, people left in their own urine, etc.). He moved on to describe how arbitration clauses are pushed on people who are vulnerable when they are in no position to say "no," and explained how arbitrators (who tend to be attorneys for other nursing homes) tend to rule for the nursing homes and rig the system in favor of the homes.
On the second panel:
Deborah Williams, a Maryland woman (and another lifelong Republican) who, along with her partner Richard Welshan, had a franchise with the Coffee Beanery, which cheated her in a variety of ways. Despite a finding by the Maryland Attorney General that the Coffee Beanery committed fraud, she was forced by the American Arbitration Association to arbitrate her claims in Michigan (500 miles from her home), spent more than $100,000 on arbitration fees to the AAA. For all of her pains, the arbitrator disagreed with the Maryland Attorney General and entered a large award against her. The arbitrator also entered a "loser pays" attorneys' fee award against her, requiring Ms. Williams and her partner to pay the Coffee Beanery’s attorneys’ fees. In the low point of the hearing, Rep. Cannon essentially tried to get Ms. Williams to agree that all of her problems were her fault for not researching the Coffee Beanery on the internet and discovering in advance that they were defrauding people. Ms. Williams described the various steps that she had taken to do due diligence about the Coffee Beanery prior to becoming a franchisee, but Rep. Cannon persisted in trying to get her to say that her problems were all her own fault.
Cathy Ventrell-Monsees, a civil rights lawyer who testified on behalf of the National Employment Lawyers Association, who passionately spoke in some detail about how employees often find arbitration rigged against them. She gave several illustrations -- Halliburton has won every case arbitrated against it by an employee, for example. She also spoke about the high costs of arbitration to employees.
Professor Peter Rutlege of Catholic University's law school, who used to work on behalf of major banks at the law firm of Wilmer Cutler & Pickering, and has filed various amicus briefs in support of mandatory arbitration, appeared on behalf of the Chamber of Commerce. Picking and choosing among the limited empirical record, he insisted that the best data shows that arbitration is better for consumers, and called for further research into the matter.
The final witness was Theodore Eppenstein of New York, a securities lawyer who argued that securities arbitrators not only rule for brokers more often than investors compared to court, but also in smaller awards. He recommended that the bill be amended to make it more explicit that pre-dispute binding arbitration is banned in securities cases. He refuted some of Professor Rutledge’s statements about the empirical record.
It was a very powerful day of testimony.
By the way, there are now 36 co-sponsors of the AFA, up from 29 last week, with three Republican co-sponsors. They are all listed below.
Rep Baldwin, Tammy [WI-2] - 10/16/2007
Rep Barrow, John [GA-12] - 7/12/2007
Rep Brady, Robert A. [PA-1] - 10/3/2007
Rep Braley, Bruce L. [IA-1] - 7/12/2007
Rep Capuano, Michael E. [MA-8] - 10/16/2007
Rep Cleaver, Emanuel [MO-5] - 10/22/2007
Rep Cohen, Steve [TN-9] - 7/12/2007
Rep Cummings, Elijah E. [MD-7] - 7/12/2007
Rep Davis, Danny K. [IL-7] - 7/30/2007
Rep DeFazio, Peter A. [OR-4] - 10/16/2007
Rep Doggett, Lloyd [TX-25] - 10/16/2007
Rep Doolittle, John T. [CA-4] - 10/3/2007
Rep Ellison, Keith [MN-5] - 7/12/2007
Rep Fattah, Chaka [PA-2] - 10/16/2007
Rep Filner, Bob [CA-51] - 10/16/2007
Rep Frank, Barney [MA-4] - 8/3/2007
Rep Gonzalez, Charles A. [TX-20] - 7/12/2007
Rep Green, Al [TX-9] - 10/16/2007
Rep Green, Gene [TX-29] - 10/22/2007
Rep Grijalva, Raul M. [AZ-7] - 9/7/2007
Rep Jackson-Lee, Sheila [TX-18] - 10/24/2007
Rep Kucinich, Dennis J. [OH-10] - 7/30/2007
Rep LaTourette, Steven C. [OH-14] - 10/24/2007
Rep Lewis, John [GA-5] - 7/12/2007
Rep Lynch, Stephen F. [MA-9] - 10/24/2007
Rep McGovern, James P. [MA-3] - 10/16/2007
Rep Nadler, Jerrold [NY-8] - 10/16/2007
Rep Pallone, Frank, Jr. [NJ-6] - 10/16/2007
Rep Payne, Donald M. [NJ-10] - 10/16/2007
Rep Sarbanes, John P. [MD-3] - 10/3/2007
Rep Schakowsky, Janice D. [IL-9] - 7/12/2007
Rep Solis, Hilda L. [CA-32] - 10/16/2007
Rep Stark, Fortney Pete [CA-13] - 10/24/2007
Rep Sutton, Betty [OH-13] - 7/30/2007
Rep Tierney, John F. [MA-6] - 10/22/2007
Rep Wasserman Schultz, Debbie [FL-20] - 9/7/2007