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"The Arbitration Debate Trap"

Written By David Arkush, Taylor Lincoln, and Peter Gosselar

Last November, Public Citizen released “The Arbitration Trap,” a scathing report exposing the one-sided nature of “justice” for consumers trapped by the National Arbitration Forum. The report inspired a lawsuit against the NAF by the city of San Francisco (WSJ[$], Watchdog Blog) and an in-depth examination of the practice by BusinessWeek (previous Watchdog Blog coverage here, Watchdog Blog’s analysis of NAF’s response to the article here).

“The Arbitration Trap” also prompted the Chamber of Commerce to commission a Catholic University law professor, Peter B. Rutledge, to write an official response. The Chamber also gave Rutledge financial support for a law review article in which he reviews empirical evidence on arbitration. These papers claimed that the broad sweep of serious academic research shows that our report was just plain wrong – “both on the facts and in its ultimate conclusions.”
We decided to check up on these academic papers. And – guess what? – it turns out that Rutledge and Co. don’t quite have the goods to back up their talk. In fact, their own sources don’t support their claims. Not a single comparative study Rutledge cites showed that individuals received larger average awards in arbitration than court. On other measures, the studies favored court overwhelmingly.

On alleged arbitrator bias, secrecy, confidentiality, appeal mechanisms, arbitrators’ adherence to the law and their own rules, and the ability of claimants to research arbitrators’ backgrounds, Rutledge offered assurances that our complaints were conjured out of thin air.

We decided to check up on Rutledge’s claims – starting with a thorough reading of Rutledge’s own past scholarship. And behold. On alleged arbitrator bias, secrecy, confidentiality, appeal mechanisms, arbitrators’ adherence to the law, arbitrators’ adherence to their own rules, and the ability of claimants to research arbitrators’ backgrounds, we found a new star witness: Rutledge himself voiced many of our concerns in his previous writings.

Yes, Rutledge recently said it was a myth that arbitrators have incentives to favor businesses. But before conceding the argument, we opened up a paper Rutledge wrote in 2004. The words poured out, “[arbitrators] who may seek to develop reputations for being friendly to particular parties or particular industries may actually have incentives that cut against independence.”

Yes, Rutledge recently argued that parties in arbitration can correct unjust decisions by asking a judge to “vacate” the award. But let’s sample some more of his past writing. He says, “The argument that aggrieved parties can always seek vacatur of the award is an inadequate response.”

What about Rutledge’s recent claim that “parties to arbitration are not bound to any confidentiality obligation”? Here’s some more of his previous work: “Many arbitration rules and some arbitration laws specifically provide for the confidentiality of proceedings and, in addition, the confidentiality of any award.” Oh, and “Arbitrations often take place under the guise of confidentiality, so even assuming that a party were willing to undertake the investment [of investigating an arbitrator], the party may be stymied in its efforts to learn much about an arbitrator’s or an institution’s reputation.”

We couldn’t have said it better ourselves.

It strains credulity that all of these comments came from the same man. Today,  Public Citizen released a new report – "The Arbitration Debate Trap" – that should help Rutledge remember his previous writing and jog his memory about the overwhelming evidence that binding mandatory arbitration is bad for consumers.


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