Critics, firms at odds on policy

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There's no way to arbitrate this issue

Critics, firms at odds on policy

By Caroline E. Mayer

The Washington Post

Published July 30, 2002

Five weeks after Dawn and and their family moved into their

new $300,000 house in Austin, Texas, they moved out.

Dawn says the house had become so contaminated with toxic mold

and volatile chemicals that she and her then-16-month-old daughter suffered

bloody noses, rashes, dizziness, shortness of breath and neurological

disorders.

In March, nine months after abandoning their home and its contents, the

s sued the builder, Weekley Homes, seeking millions of

dollars for property damage, physical pain and mental anguish.

But they discovered they couldn't take their case to court. The six-page

construction agreement they had signed contained a clause that said all

disputes had to be resolved through binding arbitration.

" My husband and I are both college-educated, but we did not know that

signing a construction contract meant that we forever gave up our

constitutional rights to a trial by jury for any and all future disputes

with our builder, " she said.

Binding arbitration means that a designated third party will unilaterally

settle a suit--no judge, no jury, no compromise as with mediation, no right

of appeal and often no public record. And the s' case illustrates

how such arbitration has penetrated everyday life.

Until a decade ago, most arbitrations pitted two businesses against each

other. Then arbitration spread to disagreements between companies and their

customers or employees, with contractual or discrimination issues on the

table.

Now, as the s' case demonstrates, private, third-party

adjudicators are being used to resolve many other types of claims, including

personal injury.

" In the old days, arbitration would not have covered personal-injury

claims, " said India , senior vice president of the American

Arbitration Association, the nation's largest arbitration provider. " These

would have gone to court. "

Arbitration is now everywhere: in employee and customer agreements with

banks, credit card providers, retailers, computer makers, exterminators and

long-distance telephone firms. They and others want employees and customers

to agree, in advance, to refer all disputes to third-party arbitration

firms, usually selected by the companies--all in the name of avoiding

protracted and costly court fights. In many cases, however, consumers may

find they still have to pay a lawyer to represent their interests.

Sign one of these agreements, and consumers and employees find they have

waived their rights to a court trial for any grievances that may arise.

Businesses say arbitration is a faster and more efficient way to resolve

disputes. Weekley Homes' general counsel, Burchfield, explained: " It

often takes two to three years to get to trial, all while the homeowner

wants his home repaired. " Arbitration can solve a dispute within months and

get any problems fixed.

Opponents of mandatory arbitration argue that it also protects many firms

from large jury verdicts, particularly from class-action lawsuits. And, they

add, the process itself often stacks the deck against the individual.

Arbitrators can limit an aggrieved individual's access to a company's

documents, thus possibly reducing support for the complaint. Arbitrations

are decided in private. Decisions are kept confidential, so consumers don't

necessarily learn what the arbitrator based a decision on. And many consumer

agreements call for the arbitration firm to be chosen by the company being

complained about.

Arbitration has been around for years, of course, one of the most common

uses being between unions and companies, with each side presumably boasting

considerable bargaining power. But pit a company against an employee or a

customer and the system is inherently biased in favor of the company, said

Cliff Palefsky, a San Francisco lawyer who has been representing employees

in their fights against mandatory-arbitration clauses for the past decade.

" It's a modern-day version of separate but equal, " he said.

Palefsky also said arbitration clearinghouses such as the American

Arbitration Association and the National Arbitration Forum consistently side

with companies in court disputes, filing briefs on their behalf. One such

filing by the American Arbitration Association prompted complaints from two

of its own arbitrators, with one saying it destroyed the group's

" hard-earned neutrality. "

Arbitration supporters say such criticism is unfounded and simply a ploy by

trial lawyers like Palefsky to get rid of arbitration. " When trial lawyers

come into the arbitration process, their fees are diminished, " said the

association's president, K. Slate. " This is a matter of real

economic importance to them. "

Slate said the association has a roster of about 12,000 arbitrators; each

acts as an independent contractor. Two complaints in that context " is not

excessive, " he said.

, head of the National Arbitration Forum, said his company

markets its services " more to the courts than anybody else, making everyone

know arbitration is a good way to get quick access to dispute resolution. "

" We market to lawyers in general and we pitch to legal-aid offices. We're

only too happy to have a case come from anywhere, " he said.

The s' case will also be heard by an association arbitrator, as

called for under the Weekley Homes contract.

A lawyer for Weekley Homes said company officials do not " believe we

built a toxic home. " Weekley said its environmental tests showed no mold

contamination, though they did show a " marginal level " of a common allergen.

is convinced she won't get a fair hearing. " We have not found a

single example of a single homeowner who's ever won against a builder in

binding arbitration, " she said.

Who's watching the arbitrators?

Few state or federal laws govern arbitrators or firms such as the American

Arbitration Association and the National Arbitration Forum, but as the use

of arbitration grows, some states are moving to create some regulatory

oversight.

The issue also has reached Congress, but most bills on the subject seek to

eliminate mandatory arbitration entirely and are deemed to have little

chance of passage, with the exception of a measure that would bar automakers

from requiring their franchised dealers to take all disputes with the car

companies to arbitration. (Dealers would still be permitted to require their

customers to arbitrate disagreements.)

Arbitration officials say that no new laws or rules are needed because there

is plenty of oversight from state and federal courts. " The courts get to

take a bite of every arbitration twice--before it happens a party can argue

the process is unfair, and then they get another bite after the award, " said

, head of the National Arbitration Forum. " An opinion is

issued almost every day now; the oversight is intense. "

But the opinions vary greatly, with some courts upholding

mandatory-arbitration clauses and some not.

There are no firm numbers on how big the business of arbitration has become.

The American Arbitration Association is the only arbitration firm whose

finances are available to the public. Last year, it administered more than

218,000 cases, a 10 percent increase from 2000 and the seventh year in a row

that its caseload increased.

American Arbitration Association President K. Slate said the

organization demands that its arbitrators disclose any potential conflict of

interest. But how much disclosure is enough? India , senior vice

president of the American Arbitration Association, said " we tell the

arbitrator to make disclosures, but we can't get inside their heads and live

with their thoughts. We encourage disclosure in training, and obviously we

want to ramp up our disclosure efforts. "

-- Caroline E. Mayer

Copyright © 2002, Chicago Tribune