Legal News

Neutrality Questions Continue to Dog Arbitration Firm

By Dan Slater

Theoretically, the likelihood of a recession and mounting consumer credit debt should be good for the National Arbitration Forum, which helps resolve disputes between credit-card companies and their customers. That is, if it can work through its allegations of lender bias.

Earlier this month, LB colleague Nathan Koppel reported that the NAF, which helps resolve disputes between credit-card companies and their customers, had been accused of favoring lenders in a lawsuit filed by the San Francisco city attorney. (Here’s the report.) The suit alleged that in specific cases the NAF approved an inflated award, improperly imposed attorneys fees and didn’t respond to a consumer’s request to appear at an arbitration.

Today, Koppel revisits the NAF, suggesting that the issue of bias could come into play more as debt-collection actions rise in a likely recession. Here’s why: A significant percentage of NAF’s work includes disputes involving consumers, rather than disputes between businesses. More than other arbitration providers, NAF works with “a few large companies, such as credit-card issuers, who potentially have disputes with many consumers,” said Jean Sternlight, a law professor at the University of Nevada, Las Vegas who specializes in arbitration. Says Sternlight: An NAF arbitrator “can expect to see many many disputes involving the same company, there may be a heightened pressure on the arbitrator to rule in favor of the company or else risk losing future arbitration work.”

NAF says “there is simply no truth to accusations that Forum arbitrators, who are experienced trial attorneys and retired judges, would risk their considerable reputations by issuing biased awards.”

Results in court on NAF have been mixed. In 2005, a West Virginia federal court held that assertions about NAF’s alleged bias were unfounded and reflected little more than “general antipathy to arbitration.” But, in 2002, a California appellate court ruled that an employee whose employer required all employee disputes to go before NAF didn’t have to arbitrate his discrimination claim. The court said the employer enjoyed a possible “repeat player” advantage, including “knowledge of the arbitrators’ temperaments, procedural preferences, styles and the like, and the arbitrators’ cultivation of further business.” The court noted, though, that there wasn’t enough evidence of a repeat-player bias to invalidate the arbitration agreement solely on that ground.

In a 2006 deposition, Elizabeth Bartholet, a Harvard Law prof who once served as a NAF arbitrator, said she was rejected by a credit-card company from hearing arbitrations after making one ruling favorable to a consumer in a credit-card debt case. Bartholet said she resigned from NAF out of concerns about the fairness of its process.

NAF says that Bartholet’s “subjective perceptions … are simply belied by the facts.”

Full post as published by Law Blog - WSJ.com on April 21, 2008 (boomark / email).