Consumer Law

National Arbitration Forum Sued by San Francisco City Attorney

By Kemnitzer, Anderson, Barron, Ogilvie & Brewer

Our consumer law firm has learned that if a potential client's dispute is covered by an arbitration clause, we generally won't take the case. There are several reasons. First, the company on the other side uses the arbitrator frequently. Since the company wouldn't continue to use the arbitrator without good results, the arbitrator has an incentive to rule for the company. Second, there's no requirement that the arbitrator follow the law. If an arbitrator doesn't like a consumer's case, that's the end of it; there is no right to an appeal as there is in court. Third, arbitrations can be enormously expensive upfront, since arbitration is essentially a form of private justice system. Finally, even if there's a statutory right to attorney's fees for the winning consumer, because the arbitrator doesn't have to follow the law, there is no guarantee that the arbitrator will award any fees at all.

We were delighted to read in The San Francisco Chronicle's recent article that San Francisco City Attorney Dennis Herrera has sued the Minneapolis-based National Arbitration Forum (NAF), one of the nation's biggest arbitration companies, for unfair business practices. The lawsuit says the NAF "is actually in the business of operating an arbitration mill, churning out arbitration awards in favor of debt collectors and against California consumers."

The complaint cites statistics showing that of 18,075 cases brought before one of the NAF's arbitrators from January 2003 to March 2007, only 30 resulted in victories for consumers.

"The lengths to which [the NAF has] gone to ensure that California consumers lose in arbitrations against debt collectors is shocking," Herrera said in a statement.

Full post as published by California Credit Law Blog on April 10, 2008 (boomark / email).