If arbitration is so wonderful….
Why don’t corporations use it themselves?
Corporate executives routinely sing the praises of arbitration clauses, the language buried in the fine print of contracts for mobile phones or credit cards, for example, that typically bars a consumer from going to court in the event of a dispute.
. . . .
Now three law professors suggest that companies are far less likely to use arbitration clauses in contracts with each other than they are in contracts with consumers.
“I believe they’re really using arbitration as a way of avoiding class action litigation,” said Theodore Eisenberg, a law professor at Cornell. Because it is not worth it to a single upset consumer to sue a big company, he said, “the only thing those companies fear is your having a plaintiffs’ lawyer aggregate you and people like you into a class action.”
The law professors in the article suggest that corporations use arbitration clauses to avoid lawsuits, and particularly class action lawsuits. I made the same argument in January of this year:
So why do creditors put in mandatory arbitration clauses that prevent them from taking debtors to court?
Because mandatory arbitration clauses prevent debtors from taking creditors to court. Credit card companies get sued routinely for violations of such acronyms as the Truth in Lending Act (TILA), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), Deceptive Trade Practices Act (DTPA), and a variety of other state and federal laws. In addition, many of these lawsuits turn into class action lawsuits, which the "reformers" constantly argue are an affront to God. By placing mandatory arbitration clauses in their contracts, credit card companies get to eliminate those evil class action lawsuits before they’re even filed. (Emphasis added.)
This quote from the NYTimes article explains how corporations really feel about arbitration in general:
“If it’s a big, important contract, then you don’t put in an arbitration clause,” said Stephen J. Ware, a law professor at the University of Kansas.
The reason why corporations don’t want to be forced to go to arbitration in “big, important” contracts is primarily because of discovery. Discovery is the process litigants use to build their cases. During discovery, a plaintiff can force a defendant to produce documents and electronic records, produce witnesses for depositions, and answer a series of questions called interrogatories. No one on either side of the tort “reform” movement will argue with me when I say that discovery can be extraordinarily expensive, and extraordinarily effective. You therefore may not be surprised to learn that arbitration severely restricts the discovery process.
I don’t believe that the discovery process should only be available to wealthy litigants. I don’t believe that consumers should have fewer rights than corporations. I believe that we should all be equal in the eyes of the law. And that’s the primary reason I oppose mandatory arbitration clauses in consumer contracts.