Congress Revives Arbitration Fairness Act

On February 12 of this year, Representative Henry Johnson (D-Georgia) introduced H.R. 1020, The Arbitration Fairness Act of 2009. The Act amends Title 9 of the U.S. Code (the Arbitration Act) to prohibit the enforcement of arbitration clauses in instances where the parties find themselves in vastly disparate economic positions. The bill specifically prohibits enforcement of mandatory arbitration clauses in employment, consumer or franchise disputes or any disputes arising under any statutes intended to protect civil rights.

The Act directly assails the arbitration process and the limited judicial review of arbitrators’ decisions, which, the authors assert, favor “corporations.” Arbitration clauses, described in the proposed congressional findings as being in “deliberately fine print,” waive the right to have disputes heard by a judge or a jury. The issue the bill seeks to redress is that these clauses are often imposed as a condition of “having a job, getting necessary medical care, buying a car, opening a bank account, getting a credit card and the like.” Interestingly, that list seems to extend beyond the reach of the group of people the statute is intended to protect but may well reveal more legislation to come.

While the challenges to arbitration have been growing, few have addressed the salient points of the generalized challenges to the process. This Act, for example, is in part predicated on the lack of “meaningful judicial review”. How though, might meaningful judicial review and strict application of the law change outcomes? Although the pressure for change seems to come from consumer advocates, a heightened degree of scrutiny might just as well result in a broader chasm between successful claims and early dismissal. Simply put, one aspect of arbitration that is also a source of great frustration for those who utilize it frequently, is the typically broad latitude afforded claimants in bringing and stating claims. As practitioners in the securities arena well know, FINRA has all but eliminated the ability to force a claimant to define the actual claims being asserted. The changes in that forum resulted from the contention that motions to dismiss were being used to delay or escalate the cost of the proceedings.
If relegated to the court system, many plaintiffs may find their claims fail to meet the legal requirements imposed by law and procedure in both State and Federal Court; requirements not imposed in the arbitration setting.

H.R. 1020’s predecessor, S 1782 (The Arbitration Fairness Act of 2007), contained a much broader prohibition precluding arbitration clauses in disputes arising out of any statute intended to regulate contracts or transactions “between parties of unequal bargaining power.” That clause does not exist in H.R. 1020 as currently proposed. Whether that and other changes that resulted in H.R. 1020 will be enough to allow the bill to move forward will be a question answered by the Subcommittee on Commercial and Administrative Law where the bill now sits.