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July 29, 2008

Chamber Research Flawed; Empirical Studies Prove That Arbitration Harms Consumers

New Public Citizen Report Shows Chamber Selectively Used Data, Failed to Address Studies With Findings Unfavorable to Arbitration

WASHINGTON, D.C. - Two recent papers published or financially supported by the U.S. Chamber Institute for Legal Reform paint a grossly inaccurate picture of the empirical evidence on binding mandatory arbitration, a comprehensive study issued today by Public Citizen reveals.

Both papers were written by Catholic University law professor Peter B. Rutledge. One was issued by the Chamber Institute as an official response to a September 2007 Public Citizen report that found that consumers lost nearly 94 percent of credit-card disputes administered by the National Arbitration Forum. The second paper was published as a law review article. Collectively, these "Chamber papers" purported to show that the broad sweep of empirical academic research suggests that individuals enjoy "superior" results in arbitration notwithstanding anecdotal evidence suggesting otherwise.

In binding mandatory arbitration - which consumers unwittingly agree to when they obtain a credit card, cell phone, bank account or myriad other goods and services - consumers lose their right to settle disputes in court and instead are routed to a private, secretive system that favors the company.

Congress is poised to take up a bill this week that would guarantee nursing home residents and their families the right to choose whether to settle disputes against nursing homes in arbitration or court. The U.S. House of Representatives Committee on the Judiciary will mark up the Fairness in Nursing Home Arbitration Act (H.R. 6126) on Wednesday.

Public Citizen’s new study analyzes the empirical evidence on arbitration and finds that it proves that individuals fare worse in arbitration than court. Significantly, not a single study cited in the Chamber papers showed individuals receiving higher average payments in arbitration than court. Individuals also fare worse in most other measures comparing arbitration and court, the actual text of the academic research indicates.

"This debate is not just academic. It’s critical to anyone who owns a cell phone, has a bank account, buys a computer or engages in any basic transaction with a large corporation," said David Arkush, director of Public Citizen’s Congress Watch division. "The Chamber is trying to fool Congress into thinking that arbitration is generally fair, despite some well-publicized injustices. But the evidence flatly contradicts the Chamber’s claims."

The study released today also reveals that in his past scholarship, Rutledge has voiced many of Public Citizen’s criticisms of arbitration. For example, Rutledge has previously expressed views that arbitrators may have incentives to favor certain parties and that arbitration lacks meaningful appeal provisions and can be excessively secretive. Rutledge even called for revoking arbitrators’ immunity from lawsuits in part because they too often ignore the law or their own rules.

Despite their celebration of the "empirical evidence," the Chamber papers take significant liberties in reporting that evidence. Namely:

• The Chamber claims that one study concluded that most arbitration clauses appear "to put the consumer on equal terms with the businesses that drafted them . . ." The Chamber omits what followed the ellipses: a warning that "the appearance of a level playing field may be deceptive" and a three-paragraph litany of criticisms against arbitration.

• Rutledge’s law review article claims that only one academic study found that individual claimants prevailed less than 50 percent of the time in arbitration. In fact, Public Citizen’s review found five other such studies - and four of them are cited in the Chamber papers.

• Both papers use evidence from a 1995 dissertation in their attempt to demonstrate that lawyers require prohibitively high provable damages to take most court cases. Although the papers proffer arbitration as a more feasible alternative, they neglect to mention that the same dissertation found that lawyers required higher provable damages to take a case to arbitration.

• The papers cite several surveys that they say demonstrate that individuals are satisfied with arbitration. The papers neglect to inform readers that the majority of these surveys concerned the voluntary use of arbitration. The difference between voluntary and mandatory arbitration is stark. It’s the difference between being forced into a private, secretive forum chosen by business or having the choice whether to go to court or to arbitrate in a fair forum. The Chamber wants businesses to have the right to force arbitration on people. It argues that voluntary arbitration won’t work because people won’t choose it. But people would choose arbitration if it were fair.

• Four of the five surveys the papers cite were financed by industry groups or by the Chamber itself. Although Rutledge’s law review article singles out one survey as not underwritten by industry associations, this claim turned out to be spectacularly inaccurate. Not only was the group that funded the survey headed by a founder and director of the National Arbitration Forum; it listed the same address as the NAF. When Public Citizen called the group’s most recently listed phone number, we reached the NAF managing director’s voice mail.

"The Chamber has expressed a great deal of concern about ensuring that people of modest means have access to justice," said Taylor Lincoln, research director of Public Citizen’s Congress Watch division. "Hopefully, our report will disabuse the Chamber of the notion that mandatory arbitration is part of the solution."

To read today’s report, Public Citizen’s September report and information about arbitration legislation, visit http://www.citizen.org/publications/release.cfm?ID=7589.

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