Alternative Dispute Resolution (ADR)/Arbitration
Alternative Dispute Resolution (ADR) refers to methods and processes of resolving claims without litigation, such as arbitration, mediation, and small claims procedures. ADR can be formal or informal and can avoid the expense and inefficiency of litigation.
ADR is widely used in the U.S., where empirical studies demonstrate that it is cheaper, faster, and often offers more compensation for the consumer. There are also well-established ADR procedures in many of the EU member states and in other countries around the world.
From an international standpoint, the European Parliament overwhelmingly approved a directive providing for the availability of Alternative Dispute Resolution (ADR) in all consumer disputes in March 2013. The Parliament also adopted a regulation establishing an EU-wide online platform for handling disputes related to online transactions. The 28 member states of the European Union now have two years to implement these new measures.
Arbitration, a form of alternative dispute resolution, was authorized by a United States ninety-plus-year-old federal law. Arbitration is a procedure used to resolve common disputes and avoid costly and time-consuming court-based litigation. In arbitration, an independent third party, the arbitrator, reviews the facts and circumstances of the dispute, applies the appropriate legal standard, and issues a ruling to resolve the conflict. For nearly a century, arbitration has reduced the cost of lawsuits for businesses and consumers alike. But now arbitration is under attack by plaintiffs’ lawyers, who see it as a barrier to the expansion of lucrative class action lawsuits.
Being able to file a class action lawsuit is the Holy Grail for plaintiffs' lawyers. The lawyers often pocket millions of dollars in fees, while the class members they represent get little in the final settlements. read more...
For many, arbitration is the better way to go. Arbitration produces faster resolutions – typically in a matter of months as opposed to a years-long class action approach. Arbitration eases the burden on the overcrowded court system, and reduces the costs of legal fees for both sides in a dispute.
Little wonder, then, that plaintiffs' lawyers want to eliminate arbitration. Their aim is to maximize litigation and legal fees by bundling claims that would have gone to arbitration into lucrative class action lawsuits. Eliminating arbitration may help plaintiffs' lawyers' bottom line, but it would hurt those seeking redress through our legal system. In addition, eliminating arbitration would lengthen the legal process and channel more money into the hands of trial lawyers rather than individuals seeking compensation.
Moreover, the vast majority of claims resolved through arbitration are ineligible for class action consideration. This is because the facts in these cases are very individualized and do not have enough in common to meet class certification standards. Eliminating arbitration would effectively leave consumers with these types of claims without legal recourse because most disputes are over a relatively low dollar amount and would typically cost more to litigate than they are worth. Furthermore, plaintiffs’ lawyers usually will not take such small dollar claims.
In other words, if plaintiffs' lawyers succeed in eliminating arbitration, it will drive up the cost of litigation, increase the workload of courts, and leave millions of Americans with very limited opportunities for restitution.
Legislative measures to limit the use of arbitration have largely been unsuccessful. For example, multiple bills and amendments that would have banned arbitration have been proposed and blocked since the early-2000s. These include the Arbitration Fairness Act (prohibiting arbitration in all consumer and employment agreements) and the Consumer Mobile Fairness Act (prohibiting arbitration in cell phone contracts).
With little success in Congress, arbitration opponents have worked to curtail the practice through the courts and federal regulatory agencies. Fortunately, the U.S. Supreme Court, in the recent cases of AT&T Mobility v. Concepcion (2011) and American Express Co. v. Italian Colors Restaurant (2013), has upheld the legal enforceability of arbitration under the Federal Arbitration Act.
However, the Consumer Financial Protection Bureau released its anti-arbitration study in March 2015, as mandated by the Dodd-Frank Act, and is now preparing a rulemaking. The agency’s findings could determine whether arbitration clauses will be upheld in consumer financial agreements. In addition, the 2010 Dodd-Frank Act authorizes the SEC to prohibit or restrict arbitration requirements for both broker-dealers and investment advisers, but the agency has yet to take action on the issue. Other agencies such as the Department of Labor, the Department of Health and Human Services, and the Department of Education have also proposed or finalized their own anti-arbitration and pro-class action litigation rules in recent months.
Due to the clear advantages of arbitration over litigation in any number of situations, and the need to preserve this important dispute resolution process, ILR has established the Coalition to Preserve Arbitration. The Coalition's membership is varied and broad. AT&T is one member of the Coalition and has provided legal and technical support on an in-kind basis in connection with our arbitration-related activities. This disclosure is being made to comply with the requirements of the Lobbying Disclosure Act of 1995, as amended by the Honest Leadership and Open Government Act of 2007.