Anti-Arbitration Legislation: A Trial Lawyer's DreamBy Christian Klein
Article Date: 06-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.
A new bill threatens to undermine a law that has helped keep many disputes out of court for more than 80 years.
As most everyone who runs a business knows, litigation costs can be devastating, especially for small companies. Frivolous lawsuits and out-of-control juries only add to the problem.
In 1925, with high litigation costs in mind, Congress enacted the Federal Arbitration Act (FAA). The purpose of FAA was to encourage the use of arbitration as a means of alternative dispute resolution, relieve pressure on the overburdened court system, and resolve lawsuits in a speedy and cost-effective manner.
Over the past several decades, to better plan for future litigation and legal costs, businesses began to insert mandatory, predispute arbitration clauses in contracts. These clauses generally state that disputes between the parties will be settled by a neutral arbitrator (as opposed to going directly to court) and that the arbitral awards are legally enforceable “by any court of competent jurisdiction.”
Since the enactment of the FAA, the arbitration system has worked as an effective alternative to traditional litigation. But that may soon change. Trial lawyers helped bankroll the Democrats’ recent electoral victories and my brethren in the Bar are now looking for payback. One of the plaintiff Bar’s top priorities is legislation that would make it significantly easier to bring lawsuits and make predispute, mandatory arbitration agreements unenforceable in many cases.
The trial lawyers argue that arbitration is unfair to consumers and employees, but the facts suggest otherwise. Many studies have shown that arbitration resolves disputes in a fair and efficient manner, while saving all parties significant costs. These studies also demonstrate that arbitration is more favorable to consumers than litigation.
The plaintiffs’ attorneys say they have no problem with arbitration in general and that their real concern is mandatory, predispute arbitration. But if parties do not agree to resolve disputes by arbitration before the disputes arise, there is little chance after contacting a lawyer that a plaintiff will elect to go to arbitration rather than court – this despite the fact that the only individuals who do not benefit from arbitration are lawyers deprived of months and years of legal fees.
While in recent years the primary targets of the anti-arbitration movement have been specific industries (e.g., auto dealers and long-term care facilities), a more general assault on arbitration is now underway on the Hill. On Feb. 12, Rep. Henry C. Johnson, Jr. (D-GA) introduced the Arbitration Fairness Act of 2009 (HR 1020) with 43 co-sponsors, a bill that would render all predispute arbitration agreements in employment, consumer, and franchise contracts unenforceable. It also would render unenforceable predispute arbitration agreements in any dispute arising under a statute intended to protect civil rights. Sen. Russ Feingold (D-WI) is expected to introduce similar legislation in the Senate very soon.
The result of this legislation would be more lawsuits, more time spent in court, and more power in the hands of unpredictable juries awarding large damages. That could potentially mean big problems for equipment distributors defending themselves in lawsuits or seeking to quickly resolve disputes with customers.
As AED members struggle to survive in the current economic environment, the last thing they need is more lawsuits and increased litigation costs, which is why HR 1020 is such a bad idea. But as this debate shapes up on the Hill, we want to know what you think. Has predispute arbitration worked for your company? If not, why not? Please shoot me an e-mail and let me know.
And rest assured that we’ll keep working to settle this dispute in the construction equipment industry’s favor.
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