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 provides a method to 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.
Arbitration, a form of ADR, is formally authorized by a ninety-plus-year-old U.S. federal law, the Federal Arbitration Act. Arbitration is a procedure used to resolve common disputes and avoid costly and time-consuming courtroom 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.
Class action lawsuits are the Holy Grail for plaintiffs' lawyers, who often pocket millions of dollars in fees, while the class members they represent get little or nothing of 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 class actions, which often last years. Arbitration reduces backlogs in our courts a the costs of legal fees for both sides in a dispute.
Given the lucrative nature of litigating class actions, it is not surprising that plaintiffs' lawyers want to eliminate arbitration with an aim towards maximizing litigation and their legal fees. Eliminating arbitration may help plaintiffs' lawyers' bottom line, but it would hurt those seeking timely, efficient, and fair redress through our civil justice system. Eliminating arbitration would lengthen the legal resolution 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 not even eligible for class action consideration. The facts in these cases are very individualized and rarely have enough in common to meet class certification standards. Eliminating arbitration would effectively leave consumers with these types of claims without legal recourse, since most of these disputes are over a relatively low dollar amount and would typically cost more to litigate than they are worth. Furthermore, plaintiffs’ lawyers rarely 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 (CFPB) released its anti-arbitration study in March 2015, as mandated by the Dodd-Frank Act. Subsequent to the study, on May 5, 2016, the CFPB issued a proposed rulemaking on arbitration clauses that would inhibit consumers from filing or participating in class action litigation. The rule would also mandate reporting to the CFPB of arbitration claims and awards. This dangerous rule proposal was open for public comment and now awaits agency action. In addition, the 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.