Statements On Introduced Bills And Joint Resolutions

Floor Speech

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - April 17, 2007)

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By Mr. SESSIONS:

S. 1135. A bill to amend chapter 1 of title 9, United States Code, to establish fair procedures for arbitration clauses in contracts; to the Committee on the Judiciary.

Mr. SESSIONS. Mr. President, I rise and send to the desk a bill entitled the ``Fair Arbitration Act of 2007.'' This bill continues the legislative process that I started several years ago with the introduction of the ``Consumer and Employee Arbitration Bill of Rights'' and the ``Arbitration Fairness Act of 2002.'' The purpose of the Fair Arbitration Act of 2007, like my earlier proposals, is to improve the Federal Arbitration Act so that it will remain a cost-effective means of resolving disputes, but will do so in a fair way. The Fair Arbitration Act will provide procedural protections to everyone who enters into a contract with an arbitration clause. This bill ensures that consumers, employees, and small businesses that enter into contracts covered by the Federal Arbitration Act will have their disputes resolved in accordance with fundamental principles of due process, and in a speedy and cost-effective manner.

Congress originally enacted the Federal Arbitration Act in 1925. It has served us well for over three-quarters of a century. Under the Act, if the parties agree to a contract affecting interstate commerce that contains a clause requiring arbitration, the clause will be enforceable in court. In short, the Federal Arbitration Act allows parties to a contract to agree not to take their disputes to court, but to resolve any dispute arising from that contract before a neutral decision-maker, generally selected by a nonprofit arbitration organization, such as the American Arbitration Association or the National Arbitration Forum. The parties can generally present evidence and be represented by counsel. And the decision-makers will apply the relevant State law in resolving the dispute. Arbitration is generally quicker and less expensive than going to court.

In recent years, there have been some cases where the arbitration process has not worked well, but thousands of disputes have been fairly and effectively settled by arbitrators. Such a system is even more important because of skyrocketing legal costs where attorneys require large contingency fees. Accordingly, I have opposed piecemeal legislative changes to the act. Instead, I believe that the Senate should approach the Federal Arbitration Act in a comprehensive manner.

The approach of reforming arbitration rather than abandoning the arbitration process provides a better solution in several respects. Arbitration is one of the most cost-effective means of resolving disputes. Unlike businesses, consumers and employees generally cannot afford a team of lawyers to represent them. And their claims are often not big enough so that a lawyer would take the case on a 25 percent or even a 50 percent contingent fee. In a 1998 article in the Columbia Human Rights Law Review, Lewis Maltby, then the Director of the National Task Force on Civil Liberties in the Workplace of the American Civil Liberties Union and a Director of the American Arbitration Association, explained how court litigation is often just too expensive for most employees:

Even if the client has clearly been wronged and is virtually certain to prevail in court, the attorney will be forced to turn down the case unless there are substantial damages. A survey of plaintiff employment lawyers found that a prospective plaintiff needed to have a minimum of $60,000 in provable damages not including pain and suffering or other intangible damages before an attorney would take the case.

Even this, however, does not exhaust the financial obstacles an employee must overcome to secure representation. In light of their risk of losing such cases, many plaintiffs' attorneys require a prospective client to pay a retainer, typically about $3,000. Others require clients to pay out-of-pocket expenses of the case as they are incurred. Expenses in employment discrimination cases can be substantial. Donohue and Siegelman found that expenses in Title VII cases are at least $10,000 and can reach as high as $25,000. Finally, some plaintiffs' attorneys now require a consultation fee, generally $200-$300, just to discuss their situation with a potential client.

The result of these formidable hurdles is that most people with claims against their employer are unable to obtain counsel, and thus never receive justice. Paul Tobias, founder of the National Employment Lawyers' Association, has testified that ninety-five percent of those who seek help from the private bar with an employment matter do not obtain counsel. Howard's survey of plaintiffs' lawyers produced the same result. A Detroit firm reported that only one of eighty-seven employees who came to them seeking representation was accepted as a client.

Without arbitration, consumers and employees are faced with having to pay a lawyer's hourly rate, which may amount to several thousand dollars to litigate a claim in court. If that is what consumers and employees are left with, many will have no choice but to drop their claim. That is not right. It is not fair. Thus, Professor Stephen Ware of the Cumberland Law School stated in a paper published by the CATO Institute that ``current [arbitration] law is better for all consumers [than an exemption from the Federal Arbitration Act] except those few who are especially likely to have large liability claims.......''

Thus, while some have argued that the Congress should enact exemptions from the Federal Arbitration Act for different classes of contracts from automobile franchise contracts to employment contracts to chicken farmers, such exemptions would not help the overwhelming majority of the people who could not afford a lawyer to litigate in court. This is where arbitration can give consumers and employees a cost-effective forum to assert their claims. Thus, before we make exceptions to the Federal Arbitration Act for special interests with friends in Washington, I think it is our duty to consider how we can improve the system for everyone.

We can improve the arbitration system, but we must take a balanced approach. In such an approach, we must protect the sanctity of legal contracts explicitly protected under Article I, Section 10 of the U.S. Constitution. In any contract, the parties must agree to all the terms and clauses included in the contract document. This includes the arbitration clause. This is basic contract law, and the basic premise of the Federal Arbitration Act for over 75 years.

Unfortunately, however, in certain situations consumers, employees, and small businesses have not been treated fairly. That is what the Fair Arbitration Act is designed to correct.

The bill will maintain the cost savings of binding arbitration, but will grant several specific ``due process'' rights to all parties to an arbitration proceeding. The bill is modeled after consumer and employee due process protocols of the American Arbitration Association, which have broad support. The bill provides the following rights:

1. Notice. Under the bill, to be enforceable, an arbitration clause would have to have a heading in large, bold print, would have to state whether arbitration is binding or optional, identify a source that the parties may contact for more information, and state that a consumer could opt out to small claims court.

This will ensure, for example, that consumers who receive credit card notices in the mail will not miss an arbitration clause because it is lost in the ``fine print.'' Further, it would give all parties a means to obtain more information on how to resolve any disputes. Finally, the clause would explain that if a party's claims could otherwise be brought in small claims court, the party would be free to do so. Small claims court, unlike regular trial court, provides another inexpensive and quick means of dispute resolution.

2. Independent selection of arbitrators. The bill grants all parties the right to have potential arbitrators disclose relevant information concerning their business ties and employment. All parties to the arbitration will have an equal voice in selecting a neutral arbitrator. This ensures that the large company who sold a consumer a product will not select the arbitrator itself, because the consumer with a grievance will have the right to nominate potential arbitrators, too. As a result, the final arbitrator selected will have to have the explicit approval of both parties to the dispute. This helps ensure that the arbitrator will be a neutral party with no allegiance to either party.

3. Choice of law. The bill grants the non-drafting party, usually the consumer or

the employee, the right to have the arbitrator governed by the substantive law that would apply under conflicts of laws principles applicable in the forum in which the non-drafting party resided at the time the contract was entered into. This means that the substantive contract law that would apply in a court where the consumer, employee, or business resides at the time of making the contract will apply in the arbitration. Thus, in a dispute arising from the purchase of a product by an Alabama consumer from an Illinois company, a court would have to determine whether Alabama or Illinois law applied by looking to the language of the contract and to the place where the contract was entered into. The bill ensures that an arbitrator would use the same conflict of laws principles that a court would in determining whether Alabama or Illinois law would govern the arbitration proceedings.

4. Representation. The bill grants all parties the right to be represented by counsel at their own expense. Thus, if the claim involves complicated legal issues, consumers, employees, or small businesses would be free to have their lawyer represent him in the arbitration. Such representation should be substantially less expensive than a trial in court because of the more abbreviated and expedited process of arbitration.

5. Hearing. The bill grants all parties the right to a fair hearing in a forum that is reasonably convenient to the consumer or employee. This would prevent a large company from requiring consumers, employees, or small business owners to travel across the country to arbitrate their claim and to expend more in travel costs than their claim is potentially worth.

6. Evidence. The bill grants all parties the right to conduct discovery and to present evidence. This ensures that the arbitrator can have all the facts before making a decision.

7. Cross examination. The bill grants all parties the right to cross examine witnesses presented by the other party at the hearing. This allows a party to test the statements of the other party's witnesses and be sure that the evidence before the arbitrator is correct.

8. Record. The bill grants all parties the right to hire a stenographer or tape record the hearing to produce a record. This right is key to proving later whether the arbitration proceeding was fair.

9. Timely resolution. The bill grants all parties the right to have an arbitration proceeding completed promptly so that they do not have to wait for a year or more to have their claim resolved. Under the bill, a defendant must file an answer not more than 30 days of the filing of the complaint. The arbitrator has 90 days after the answer to hold a hearing. The arbitrator must render a final decision within 30 days after the hearing. Extensions are available in extraordinary circumstances.

10. Written decision. The bill grants all parties the right to a written decision by the arbitrator explaining the resolution of the case and his reasons therefor. If the consumer or employee takes a claim to arbitration, he deserves to have an explanation of why he won or lost.

11. Expenses. The bill grants all parties the right to have an arbitrator provide for reimbursement of arbitration fees in the interests of justice and the reduction, deferral, or waiver of arbitration fees in cases of extreme hardship. It does little good to take a claim to arbitration if the consumer or employee cannot even afford the arbitration fee. This provision ensures that the arbitrator can waive or reduce the fee or make the company reimburse the consumer or employee for a fee if the interests of justice so require.

12. Small claims opt-out. The bill grants all parties the right to opt out of arbitration into small claims court if that court has jurisdiction over the claim and the claim does not exceed $50,000.

The bill also provides an effective mechanism for parties to enforce these rights. At any time, if a consumer or employee believes that another party violated his or her rights, the consumer or employee can request and the arbitrator may award a penalty up to the amount of the claim plus attorneys fees. For example, if a defendant party failed to provide discovery to a plaintiff party, the plaintiff could move for an award of fees. The amount of the fee award is limited, as it is in court, to the amount of cost incurred by the employee in trying to obtain the information from the company. This principle is taken from Rule 37 of the Federal Rules of Civil Procedure. After the decision, if the losing party believes that the rights granted to him by the Act have been violated, it may file a petition with the Federal district court. If the court finds by clear and convincing evidence that the losing party's rights were violated, it may order a new arbitrator appointed. Thus, if a consumer, employee, or small business has an arbitrator that is unfair and this causes him to lose the case, the plaintiff can obtain another arbitrator.

This bill is an important step to continuing a constructive dialog on arbitration. This bill will ensure that those who can least afford to go to court can go to a less expensive arbitrator and be treated fairly. It will ensure that every arbitration carried out under the Federal Arbitration Act is completed fairly, promptly, and economically. I look forward to working with my colleagues in the Senate to ensure that consumers, employees, and small businesses who agree in a contract to arbitrate their claims will be treated fairly under the Federal Arbitration Act.

I ask unanimous consent that the text of the bill be printed in the Record.

There being no objection, the text of the bill was ordered to be printed in the RECORD

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