"underdog" Arbitration: a Plan for Transparency

• Publication year: 2021

"UNDERDOG" ARBITRATI ON: A PLAN FOR TRANSPARENCY

Ramona L. Lampley(fn*)

Abstract: The use of mandatory, pre-dispute arbitration clauses in consumer, employment, health-care, and even nursing home agreements is ever-increasing, even though the general public has distrust and a lack of understanding of the nature of arbitration. The Supreme Court in AT&T Mobility LLC v. Concepcion, and then in American Express Co. v. Italian Colors Restaurant, has signaled firmly that mandatory pre-dispute arbitration is here to stay. This is true even for individual low-value claims in which one party, say the consumer or employee, has little or no bargaining power. I call these claims "underdog claims." There have been numerous proposals to amend the Federal Arbitration Act (FAA) to exclude such claims from mandatory pre-dispute arbitration agreements and numerous criticisms raised in reaction to the Court's jurisprudence. But with the Supreme Court's theoretical view that arbitrating underdog claims is fair, these criticisms have gone unheeded by the majority of the Court. Now the question is how should we approach this new field of dispute resolution in which so many claims will be resolved? This Article analyzes the meritorious criticisms of underdog arbitration, which include bias, the repeat-player effect, the removal of publicity, the lack of judicial oversight, and a general concern about the lack of transparency. Then I propose a three-part solution for promoting transparency to establish a system in which underdog arbitration can work. I propose that the FAA be amended to require transparency in consumer and employee claims through: (1) uniform data reporting at the arbitration service-provider level; (2) requiring a written statement of decision in such disputes; and (3) data-reporting requirements by the business entity imposing mandatory pre-dispute arbitration on the employee/consumer stake-holder.

INTRODUCTION .............................................................................. 1728

I. WHERE WE ARE AND HOW WE GOT THERE ..................... 1736

II. INDIVIDUALIZED ARBITRATION OF UNDERDOG CLAIMS: SOME NOTEWORTHY CRITIQUES ......................... 1744

A. The Class-Waiver: Fair? Economical? Rational? Who Knows? ............................................................................... 1746

B. Bias: You Don't Bite the Hand That Feeds You ................ 1748

C. Whatever Happened to Judicial Oversight? ....................... 1752

D. Preserving the Rule of Law ................................................ 1755

E. The Confidentiality Problem .............................................. 1759

III. A CALL TO CONGRESS: A LITTLE TRANSPARENCY FROM MY FRIENDS ................................................................. 1762

A. The Seemingly Obvious Solution: Mandated Data Reporting ............................................................................ 1763

1. Data Reporting: The Necessity of a Penalty for Failure to Comply ..................................................... 1767

2. Data Reporting: The Necessity of Useful Data Fields ........................................................................ 1769

3. Making the Data Useful: The Necessity of a Uniform Consumer-Friendly Reporting Mechanism 1772

B. The FAA Should Require Arbitrators in Consumer and Employee Disputes to Issue a Statement of Decision ........ 1773

C. The FAA Should Require Business Entities That Require Binding Pre-Dispute Arbitration for Consumers or Employees to Annually Report Data on the Extent and Nature of Such Arbitrations ............................................... 1775

D. Increased Transparency: A Step in the Right Direction, but Not a Panacea ............................................................... 1778

CONCLUSION .................................................................................. 1780

INTRODUCTION

The consumer, employment, corporate, and health-care spheres now operate in a world in which binding individual arbitration is permitted and widely employed.(fn1) For years the debate centered on whether pre-dispute binding arbitration imposed on parties with less bargaining power (e.g., consumers and employees) was fair as an alternative forum. A corollary debate focuses on whether the class-action waiver/arbitration clause is inherently unfair and unenforceable under state unconscionability doctrines or vindication of statutory rights theories when plaintiffs assert low-value claims that an individual would not rationally pursue. In recent cases, most recently American Express Co. v. Italian Colors Restaurant (fn2) and AT&T Mobility LLC v. Concepcion,(fn3) the Supreme Court has repeatedly decided that arbitration is an adequate alternative forum for litigants-even those who must proceed individually with low-value claims.(fn4) Thus, the Supreme Court has signaled that arbitration in the consumer, employment, and even healthcare arenas is here to stay, unless eroded by legislative amendment or regulatory action.(fn5) The benefits and detriments of class-waiver arbitration agreements to the consumer and to society are hotly contested. Even as this Article was prepared for publication, the Consumer Financial Protection Bureau (CFPB) announced that it will propose a rule prohibiting class-action waivers in arbitration agreements for consumer financial products and requiring more transparency in individual arbitration awards.(fn6) What becomes of this proposed rule will be decided over the course of the coming year,(fn7) but the proposal demonstrates the opposition to class-waiver arbitration agreements and the importance of transparency and empirical data on the regulatory regime of arbitration versus class action.

This Article suggests that the debate should move beyond the question of permissibility to the regulatory structures under which arbitration should operate.(fn8) The conversation begins with the observation that each of the Supreme Court's decisions and academics' arguments are based almost entirely on theories of how arbitration should work rather than empirical data about how arbitration does work.(fn9) While the body of empirical research to date is both useful in assessing consumer arbitration and growing, it also has significant limitations.(fn10) One limitation is that most of the empirical research to date is based on data from the American Arbitration Association (AAA),(fn11) which is a widely used arbitration administrator, but certainly not the only administrator. This use of this empirical evidence is rare in the Court's pro-arbitration jurisprudence. For example, in Concepcion, Justice Scalia cited limited statistics from the AAA regarding dispositions of actions within an eight-month period in 2007 compared to disposition statistics for class arbitrations up to 2009 in his opinion describing arbitration as ill suited for class proceedings.(fn12) Surely we can do better than an eight-month data set as evidence of the outcomes of individual arbitration. But this use of empirical evidence was unusual. Most decisions addressing the adequacy of arbitration as an alternative forum are based on no data, perhaps due to lack of comprehensive research until recently.(fn13)

This Article accepts two principles as a starting point: (1) Access to justice through the federal and state courts for many individual consumers or employees is unobtainable, and (2) my previously voiced position that in certain kinds of pre-dispute class-waiver arbitration agreements, the consumer/employee/plaintiff might be in as good a position, if not better off, as in the courts.(fn14) The main arguments advanced against this suggestion that arbitration could be just as beneficial to the individual litigant (as opposed to class member) are: arbitrator bias, lack of judicial oversight, the lack of a written decision, potential confidentiality, and the demise of the class action. The first four of these are perpetuated from a general criticism about the lack of transparency in consumer arbitration. However, these flaws could be minimized by the adoption of a regulatory scheme designed to improve transparency.

For example, arbitrator bias is theoretically presumed to stem, in part, from the repeat-player effect. This could occur at the individual arbitrator level or at the service provider level. Critics suggest that arbitrators may be consciously or unconsciously influenced by the fact that the corporate litigant is the paying party, and will not bring him or her repeat business if the arbitrator issues a decision or award that is not favorable to the business.(fn15) This "don't bite the hand that feeds you" prognosis has some basic logic to it, but does not necessarily indicate that all arbitrators have repeat-player bias. Much the same argument could be made of state court judges who accept campaign contributions from potential litigants. How are we to know if the repeat-player effect taints the fair administration of arbitral proceedings for "underdog" claims?(fn16) We need transparency.

At least some history tells us that bias is real and problematic. In 2009 the Minnesota Attorney General's office filed suit against the National Arbitration Forum (NAF)-the then leading debt collection arbitration forum.(fn17) According to the allegations, the NAF purportedly held itself out as an impartial arbitration provider while having ties to key...