Legal News

Consumers Rejoice: After All, Arbitration is Fair, Study Says

By Nathan Koppel

Mandatory arbitration may not be a bad deal for consumers after all. That’s the upshot of a comprehensive study released today by Northwestern law school.

Arbitration is “relatively inexpensive and expeditious, and outcomes are not biased in favor of businesses,” said Geoff Lysaught, director of Northwestern's Searle Civil Justice Institute, which studied 301 consumer arbitrations finalized by the American Arbitration Association in 2007. The report can be found here.

It is likely to get a lot of attention in light the Arbitration Fairness Act, which is now pending before Congress and effectively would do away with the mandatory arbitration agreements used widely by many industries.

Critics have long claimed that arbitrations tend to favor corporate defendants, in part because arbitrators want to curry favor with the companies that are repeat users of arbitration services.
The Northwestern report found that:

* Consumers, on average, wrapped up their arbitrations in 6.9 months.

* Consumers won some relief in 51.8 percent of the cases filed against repeat businesses ─ close to the 55.3 percent win rate that consumers enjoyed against non-repeat businesses.

* Consumers recovered an average award of $19,255

Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform, was quick to hail the report, which she said "helps prove that arbitration continues to provide consumers with fair, inexpensive and unbiased access to justice."

As best we can tell, though, the study does not offer a comparative assessment between arbitral and jury awards in consumer cases.

Update: We just heard from Paul Bland, a staff lawyer at Public Justice, a public interest law firm, who believes the Northwestern study should be taken with a grain of salt.

"I think it's misleading to characterize consumer arbitrations generally by looking at a single [arbitration] provider," he says. "I see companies shopping for the arbitration firms that will rule for them the most often."

Full post as published by Law Blog - WSJ.com on March 11, 2009 (boomark / email).