Tim Cushing at Techdirt picked up on the post I did on the Barnes & Noble case (where I, in turn, was picking up on the post Venkat Balasubramani did on Eric Goldman’s Technology & Marketing Law Blog).
In my post, I tried to explain why arbitration is such a great deal for corporations. For various reasons I didn’t dwell on the question of whether corporations get better-than-fair treatment in the arbitration itself. But they do. Much better.
Cushing picked up where I left off by citing to a Seattle Post Intelligencer article reporting the results of a Public Citizen study finding that corporations beat consumers about 95 percent of the time in arbitration.
The Public Citizen study the PI was talking about appears to be this one: The Arbitration Trap: How Credit Card Companies Ensnare Consumers [pdf].
The details are interesting. The key statistic in the study is actually 94 percent – that’s the winning rate for corporations in the cases handled in California by the private arbitration service provider called the National Arbitration Forum. (California formed the sample pool because California, unlike other states, requires public reporting of some limited data by arbitrators.)
The 95 percent figure is for just a small group of specific 28 arbitrators. But it’s that elite group that gets almost all the work!
The Busiest Arbitrators Produce the Results Corporations Seek: In California, a small, busy cadre of 28 arbitrators handled nearly 9 out of every 10 NAF cases. This group ruled for businesses 95 percent of the time. Another 120 arbitrators handled slightly more than 10 percent of the cases in which an arbitrator was assigned. They ruled for businesses 86 percent of the time and for consumers 10 percent.
Can you imagine what it would be like if, instead of judges getting their salary from the government, they were paid by litigants. And can you imagine if there were different court systems competing with one another, all vying for the repeat business of litigants who constantly find themselves being sued? Well, you don’t have to imagine it: That’s arbitration.
As a corporate user of arbitration, you pick the arbitration firm upfront by selecting it in the terms of service or credit-card holder agreement. Of course, you are going to pick the firm that gives you good results. And since arbitration firms are competing for the loyalty of corporate customers, they are going to pick the arbitrators that give those corporate customers what they want. That’s not something dirty for the corporation to do, mind you. That’s just a general counsel doing her or his job. But it sure creates incentives that are skewed.
The report explains:
Arbitrators have a strong financial incentive to rule in favor of the companies that file cases against consumers because they can make hundreds of thousands of dollars a year conducting arbitrations. The arbitrators are chosen by the arbitration firms hired by MBNA and other corporations, which are unlikely to pick arbitration firms that produce results they do not like. Arbitrators routinely charge $400 or more an hour. Top arbitrators can charge up to $10,000 per day and some make $1 million a year. In comparison, California Superior Court judges earn $171,648.
(Yeah, judges don’t make as much. But, in fact, the judgeship is a great stepping stone to being an arbitrator.)
The Public Citizen report explains how systemic bias can develop:
A Race to the Bottom for Arbitration Firms: Companies track how arbitrators rule, and do not choose arbitrators who do not rule in their favor. One NAF arbitrator, a Harvard law professor, was blackballed after she awarded $48,000 to a consumer in a case in which a credit card company filed a claim against the consumer. After the same credit card company had her removed from other pending cases, she resigned, citing NAF’s “apparent systematic bias in favor of the financial services industry.”
Hey, do you get the feeling that Harvard law professor they might have been talking about was Elizabeth Warren? Yeah, me too! Warren was thanked in the acknowledgments section, but it’s just as likely she was their source for information about a different Harvard law professor. (Harvard does have a huge faculty.)