Public Citizen: Is Arbitration Closing the Doors to Justice for Consumers?

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(We are so grateful for this help - Dawn)

Public Citizen

1002 West Avenue

Austin, TX 78701

(512) 477-1155

email: smitty@...

PRESS RELEASE

For Immediate Release: May 14, 2002

For more information, call: Tom " Smitty " @ 512-477-1155 or

512-797-8468

@

512-797-8469 or 512-917-7977

Dawn @

512-288-3999

Is Arbitration Closing the Doors to Justice for Consumers?

New Public Citizen Report Highlights Problems With Arbitration; Citizen

Complaints Will Be Addressed In an Interim Committee Hearing On Wednesday

Austin, Texas - At a press conference at the State Capitol, consumer

advocates today released a study showing that arbitration, widely billed as

a low-cost alternative to court, is actually far more expensive for

consumers and employees who seek redress for discrimination, fraud and

malpractice. In fact, arbitration costs are so high that many people drop

their complaints because they can't afford to pursue them, Public Citizen

found. The press conference was held in advance of a hearing that will be

held Wednesday before an legislative committee to take testimony on whether

arbitration is hurting or helping consumers.

Mandatory arbitration clauses are increasingly being written into

everything from basic equipment purchase forms to employment contracts. If

consumers use a credit card or cell phone, or have health insurance, they

likely have signed or received a form with fine print prohibiting them from

suing the company and instead requiring them to take disputes to

arbitration. Employees, too, are increasingly finding out too late that they

have given up their right to sue and instead must submit disputes with their

employers to an arbitrator instead of a judge

" Arbitration is a private legal system in which, practically speaking, no

appeals are allowed. Arbitrators tend to favor businesses, and arbitration

awards tend to be much lower than jury verdicts, because arbitrators often

favor companies that will provide them future business, " said

, legislative counsel to Public Citizen

Arbitration was touted as a cheaper, faster, fairer way to resolve disputes

when tort reforms were proposed in the 1980s and 1990s. But according to a

new Public Citizen study, The Costs of Arbitration, arbitration clauses

throw up numerous hurdles that consumers must clear to obtain redress.

According to the report, the cost of initiating an arbitration case is

almost always higher than the cost of filing a lawsuit. For instance, an

$80,000 consumer claim brought in the Circuit Court of Cook County, Ill.,

would cost $221, versus $11,625 at National Arbitration Forum (NAF), a 5,260

percent difference. The American Arbitration Association (AAA) would charge

the plaintiff up to $6,650, and Judicial Arbitration and Mediation Services

(JAMS) would charge up to $7,950, amounting to a 3,009 percent and 3,597

percent difference in cost, respectively. In requiring payment of these high

fees up-front, arbitration destroys the benefits of attorney contingency fee

arrangements, which allow plaintiffs to pursue cases without advancing

funds.

Austin-resident Dawn was forced into arbitration when her new

home, built by Weekley Homes, turned out to be a toxic nightmare. Her

new home, came with a leak that caused water to seep between walls and

under hardwood floors. The builder, Weekley Homes, failed after

numerous complaints to remove or dry any of the wet building materials. This

led to the growth and spreading of toxic mold. Because of serious health

problems, 's family had to evacuate the home after only five weeks

of living there. Extensive testing found high levels of toxic mold in walls,

hardwood floors and in all 3 bathrooms. Additional testing revealed

dangerous levels of toxic petroleum based solvents and other toxic volatile

organic compounds in the home. Among the chemicals found were benzene,

decane, heptane, formaldehyde, methylbenzene, octane, styrene and xylene.

The contamination led to neurological injuries to family members and the

death of the family cat.

Because the home purchase contract contained an arbitration clause,

's claims must be arbitrated. If she prevails in the arbitration,

she stands to have tens of thousands of dollars in arbitrator fees deducted

from any award. The arbitrators, chosen from among builders, contractors and

attorneys with ties to the construction industry, will be sympathetic to the

defendant, and may be blackballed from future work if they rule for us.

Meanwhile, 's baby daughter's injury claims will be heard in

court, necessitating duplicate presentations of evidence about the same

events and expert findings.

" We have never found a home buyer who has ever prevailed against a home

builder in an arbitration claim and thus feel like this system is a dead end

street for consumers, " said. " There has to be a fairer way.

Tomorrow's review by this committee is the first step toward giving Texans a

chance to take back their justice system. "

" Congress, the courts and the public have been victims of a disinformation

campaign, portraying arbitration as an inexpensive and impartial alternative

to the public courts, " said Tom " Smitty " , director of Public Citizen's

Texas office. " Today, we authoritatively debunk this myth. The grim fact is

that for people who are victims of consumer rip-offs and workplace

injustices, arbitration costs much more than litigation - so much more that

it becomes impossible to vindicate your rights. "

People caught in arbitration's net include home buyers complaining of shoddy

workmanship, employees pursuing discrimination cases, patients seeking

redress for poor care from their HMOs, small business owners in dispute with

franchisers and consumers who are improperly billed.

The report also found that:

* Clauses in contracts lock consumers in to a specific arbitration firm

chosen by the defendant. Companies that want to use arbitration to prevent

consumers and others from asserting their legal rights have no incentive to

arrange low-cost arbitration. Instead, it is to their advantage to seek out

the most expensive providers.

* Arbitration costs will probably always be higher than court costs because

the expenses of a private legal system are so substantial. The same support

personnel that expedite cases at a courthouse, such as file clerks and court

administrators, are also needed to manage arbitration cases. While it costs

the Clerk of the Circuit Court of Cook County an average of $44.20 to

administer a case, AAA's administrative cost per case averages $340.63,

about 700 percent more.

* Arbitration saddles claimants with a plethora of extra fees that they

would not be charged had they gone to court. For example, the NAF charges

$75 to issue a subpoena, which is provided for free or at nominal cost by

courts. The NAF also charges fees for discovery requests ($150) and

continuances ($100), which are free in court.

" We challenge Corporate America and the arbitration apologists to rebut

this report, " said , who prepared the report. " Show us your

substantiation for the claim that arbitration is cheaper. "

A copy of the report is available online at

http://www.citizen.org/documents/ACF110A.PDF.

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Public Citizen is a nonprofit consumer advocacy organization based in

Washington, D.C. For more information, please visit www.citizen.org.

For Dawn ' s story see www.Toxichomes.org