Searle Civil Justice Institute - American Arbitration Association

157 Pages·2009·1.39 MB·English

by  Geoffrey Lysaught

Searle Civil Justice Institute

CONSUMER ARBITRATION
Before the American Arbitration Association

Preliminary Report

March 2009

Searle Center on Law, Regulation, and Economic
Growth

Northwestern University School of Law

Copyright © 2009 Searle Civil Justice Institute

SEARLE CIVIL JUSTICE INSTITUTE

Founded in early 2008 as a division of the Searle Center on Law, Regulation, and Economic
Growth, the Searle Civil Justice Institute (SCJI) aims to become the preeminent national source
of large scale, empirical studies on public policy issues related to our nation’s civil justice
system. An operating premise of the Searle Civil Justice Institute is that hard data is a powerful
and necessary tool in public policy debates.

SCJI expands and furthers the mission of the Searle Center on Law, Regulation, and Economic
Growth. The Searle Center studies the impact of laws and regulation on economic growth and
communicates the results of that research to academic, public policy, and judicial leaders. The
Searle Center was founded in 2006 as a unit of Northwestern University School of Law with a
generous grant from Daniel C. Searle, longtime philanthropist and Northwestern University
trustee.

A Board of Overseers advises and reviews the activities of the Searle Civil Justice Institute. The
Board is composed of a balanced group of leading legal, economic, business, and public policy
experts. The Board of Overseers has approved the SCJI Research Protocol to ensure the quality,
objectivity, and independence of all SCJI work product. In accordance with the SCJI Research
Protocol, all research projects are subjected to independent peer review prior to widespread
dissemination. SCJI work products do not necessarily reflect the opinions or policies of the
research sponsors or the SCJI Board of Overseers.

Northwestern University School of Law
375 East Chicago Avenue
Chicago, IL 60611-3069
312-503-3100

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BOARD OF OVERSEERS

Henry N. Butler, Executive Director, Fern O’Brian, Partner, Arnold &
Searle Center on Law, Regulation, and Porter LLP
Economic Growth

Richard O. Faulk, Gardere Wynne Robert S. Peck, President, Center for
Sewell LLP Constitutional Litigation, PC

Peter Flynn, Judge, Circuit Court of William Ray Price, Judge, Missouri
Cook County, Illinois Supreme Court

Harris L Hartz, Judge, U.S. Court of Victor E. Schwartz, Shook, Hardy &
Appeals for the Tenth Circuit Bacon LLP

Jeffrey W. Jackson, Senior Vice Marschall I. Smith, Senior Vice
President and General Counsel, State President, Legal Affairs and General
Farm Mutual Automobile Insurance Counsel, 3M Company
Company

Jason S. Johnston, Robert G. Fuller, Joseph F. Speelman, Associate
Jr. Professor of Law, University of General Counsel, LyondellBasell
Pennsylvania Law School Industries

Edith Jones, Chief Judge, U.S. Court Gerald Bard Tjoflat, Judge, U.S.
of Appeals for the Fifth Circuit Court of Appeals for the Eleventh
Circuit

Allan Kanner, Founder and Senior Teresa Toriseva, Toriseva Law
Member, Kanner & Whiteley, LLC

Janet Langford Kelly, Senior Vice Daniel E. Troy, Senior Vice President
President, Legal, General Counsel and and General Counsel,
Corporate Secretary, ConocoPhillips GlaxoSmithKline plc

Geoffrey J. Lysaught, Director, David E. Van Zandt, Dean,
Searle Civil Justice Institute Northwestern University School of
Law

William B. Lytton, Senior Counsel, Robert P. Young, Jr., Justice,
Dechert LLP Michigan Supreme Court

Sally B. Narey, General Counsel,
Fireman’s Fund Insurance Company

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CONSUMER ARBITRATION TASK FORCE

Christopher R. Drahozal
Consumer Arbitration Task Force Chair
John M. Rounds Professor of Law
University of Kansas School of Law

Henry N. Butler
Executive Director, Searle Center on Law, Regulation, and Economic Growth
Northwestern University School of Law

Judyth W. Pendell
Senior Advisor for Research and Strategic Initiatives
Searle Civil Justice Institute

Samantha Zyontz
Research Associate
Searle Civil Justice Institute
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Foreword

Arbitrations between businesses and consumers arising out of pre-dispute arbitration agreements
have increasingly come under attack. Proposed federal legislation, the Arbitration Fairness Act
of 2009, would make pre-dispute arbitration clauses unenforceable in consumer, employment,
and franchise contracts. Critics assert that arbitration providers do not adequately enforce
minimum procedural safeguards, or Due Process Protocols, to ensure the fairness of arbitration.
Moreover, critics question the impact of cost on access to arbitration, the speed of the process,
and how well consumers fare relative to businesses in such proceedings. In contrast, supporters
of consumer arbitration maintain that such proceedings actually increase access to justice and are
conducted in a fair, timely, and cost-effective manner.

An operating premise of the Searle Civil Justice Institute (SCJI) is that public policy debates
should be informed by systematically collected and rigorously analyzed empirical data. Despite
the importance of empirical evidence to discussions of the Arbitration Fairness Act, the record as
it relates to consumer arbitration is limited in important respects. To begin with, arbitrations are
privately managed procedures for which data are generally not available. In addition, while a
number of studies have examined other types of arbitration, far fewer studies have examined
consumer arbitration in any systematic way. Finally, there is no empirical evidence examining
enforcement of Due Process Protocols by arbitration providers.

To better understand the issues surrounding consumer arbitration and to begin developing a
factual record for policy discussion, SCJI commissioned a Task Force on Consumer Arbitration.
Christopher R. Drahozal, John M. Rounds Professor of Law at the University of Kansas, was
asked to chair this ongoing initiative for SCJI. SCJI approached the AAA requesting access to
its case files and related data for research purposes. This request was conditioned on the
requirement that SCJI be able to conduct its research and analysis in a manner that was
independent and impartial. The results contained in this Preliminary Report fully and accurately
reflect the results of SCJI’s data collection and analysis.

This report is denoted as preliminary for two reasons. First, SCJI intends to continue its
empirical work on consumer arbitration by developing a comparison with similar claims brought
in traditional court proceedings. Second, SCJI is prepared to refine its work based on future
studies, critiques, and ongoing debate.

Henry N. Butler, Executive Director
Searle Center on Law, Regulation, and Economic Growth

Geoffrey J. Lysaught, Director
Searle Civil Justice Institute
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Contents

Foreword………………………………………………………………………………………… vii

Executive Summary……………………………………………………………………………… xi

Acknowledgments………………………………………………………………………………xvii

INTRODUCTION……………………………………………………………………………………. 1

I. BACKGROUND………………………………………………………………………………... 5
A. Prior Empirical Research on Consumer Arbitration – Cost, Speed, and Outcomes….. 5
B. Overview of Arbitration Due Process Protocols…………………………………….. 16

II. AAA CONSUMER ARBITRATION PROCEDURES……………………………………………… 25
A. AAA Procedures for Consumer Arbitration………………………………………… 25
B. Process of AAA Protocol Compliance Review……………………………………... 27
C. Substance of AAA Protocol Compliance Review…………………………………... 30

III. RESEARCH METHODOLOGY…………………………………………………………………. 35
A. Research Questions………………………………………………………………….. 35
B. Data & Methodology………………………………………………………………... 37

IV. EMPIRICAL RESULTS………………………………………………………………………... 45

Topic 1. Costs, Speed, and Outcomes of AAA Consumer Arbitrations…………………………..45
A. General Case Characteristics………………………………………………………... 45
B. Cost of AAA Consumer Arbitrations………………………………………………...54
C. Speed of AAA Consumer Arbitrations……………………………………………… 62
D. Outcomes of AAA Consumer Arbitrations…………………………………………..66

Topic 2. AAA Enforcement of the Consumer Due Process Protocol……………………………. 83
A. Problematic Clauses…………………………………………………………………. 83
B. AAA Review of Protocol Compliance……………………………………………….89
C. Refusal to Administer Cases………………………………………………………… 93
D. Business Responses to AAA Compliance Review………………………………….. 96
E. Other Issues………………………………………………………………………… 100

CONCLUSIONS…………………………………………………………………………………... 109
A. Empirical Findings…………………………………………………………………. 109
B. Policy Implications………………………………………………………………… 111

Appendices……………………………………………………………………………………... 115

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