National Arbitration Forum

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The National Arbitration Forum, founded in 1986, is one of the nation's largest dispute resolution companies.[1] The company provides arbitration and mediation services to businesses, based out its Minneapolis, Minnesota headquarters and offices in New Jersey. The company maintains a panel of over 1,600 arbitrators and mediators who are attorneys and former judges located across the United States and in 35 countries around the world[2]. Panelists arbitrate and mediate the disputes. The company is an "approved"[3] dispute resolution service provider of ICANN domain name disputes and has handled more than 7,600 cases [4].

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[edit] Controversy Over the National Arbitration Forum and Claims of Pro-Business Bias

Consumer advocacy groups and attorneys frequently claim that the National Arbitration Forum is the most biased against consumers of the major arbitration organizations. Recent studies of the National Arbitration Forum arbitrations demonstrate that in arbitrations between consumers and businesses, 94 percent of the National Arbitration Forum's decisions are in favor of the businesses that fund its activities. The National Arbitration Forum and its proponents claim that arbitration offers businesses a preferred way to resolve legal disputes without going to court because it offers "efficiency and simplicity." Consumer advocates counter that arbitration is usually imposed by businesses on consumers, employees, and other individuals who have no choice in the matter. Businesses insert contract provisions, known as mandatory binding arbitration clauses, into form their contracts. These arbitration clauses prohibit consumers or employees from raising any claim in court. Virtually every American who has a credit card or cell phone, or who builds a house, gets a job, or buys a computer has agreed unknowingly to settle any dispute through binding mandatory arbitration (BMA).

[edit] Public Citizen Study of National Arbitration Forum Cases

The non-profit consumer advocacy group Public Citizen recently conducted an eight-month examination into the credit card industry's use of pre-dispute binding mandatory arbitration based on all available data from the National Arbitration Forum. Public Citizen examined court records and scholarship on arbitration and comprehensively crunched data for all 33,948 cases in the National Arbitration Forum’s California records. The Public Citizen report found that the credit card industry relies heavily on binding mandatory arbitration to enforce its will. The National Arbitration Forum identified virtually all of its California cases as "collection" cases filed against consumers by credit card companies or firms that buy debts for cents on the dollar. Fifty-three percent of those cases involved MBNA credit cardholders. All but 118 of the National Arbitration Forum cases in California were filed against consumers by credit cards or debt collectors. Thus, the report found that consumers chose to bring only 118 cases before the National Arbitration Forum, while corporations chose the National Arbitration Forum nearly 34,000 times – 99.6 percent of the total cases.

In the more than 19,000 cases in which the National Arbitration Forum appointed an arbitrator, 94 percent of the decisions were in favor of the business and against the consumer.

Arbitrators also have a strong financial incentive to rule in favor of companies that file cases against consumers because those companies are their most loyal customers, and a busy arbitrator can make hundreds of thousands of dollars a year. Arbitrators routinely charge $400 or more an hour. Top arbitrators can charge up to $10,000 per day, and some make $1 million a year. In comparison, California Superior Court judges earn $170,000 a year.

The deck also is stacked against consumers by the same financial incentives. The slate of arbitrators is chosen by National Arbitration Forum, and the National Arbitration Forum is, in turn, chosen as the arbitration firm of choice by credit card giant MBNA. It is highly unlikely that MBNA would pick an arbitration firm that produces results MBNA does not like.

In California, a small, busy cadre of 28 arbitrators handled nearly nine of every 10 National Arbitration Forum cases. This group ruled for businesses 94 percent of the time. Another 120 arbitrators handled slightly more than 10 percent of the cases in which an arbitrator was assigned. They ruled for businesses 86 percent of the time and for consumers 10 percent. Outside of California, there is little information that would allow consumers to even begin to assess the bias of an arbitrator because California is the only state with any disclosure law on the books.

Companies do not choose arbitrators who do not rule in their favor. One former National Arbitration Forum arbitrator, a Harvard law professor named Elizabeth Bartholet, was blackballed after she awarded $48,000 to a consumer in a case brought by a credit card company. After the same company had her removed from other pending cases, she resigned, citing the National Arbitration Forum’s "apparent systematic bias in favor of the financial services industry."

Unlike court proceedings, arbitration hearings are secret. Its arbitrators generally do not issue a written decision unless one of the parties specifically requests and pays for it in advance. In one case examined in the Public Citizen report, a three-page decision cost $1,500.

Critics also charge that, arbitration violates due process safeguards. The National Arbitration Forum limits parties’ access to key information that they would be allowed to obtain in court. The law makes it nearly impossible for consumers to appeal adverse decisions by arbitrators.

[edit] Arbitration Fairness Act

Senator Russ Feingold of Wisconsin and Congressman Hank Johnson of Georgia, together with numerous co-sponsors in both Houses, recently introduced the Arbitration Fairness Act (S. 1782, H.R. 3010) in the U.S. Congress. The bill would prohibit mandatory pre-dispute binding arbitration in consumer, employment, and franchise disputes. Parties to a dispute would still be able to choose arbitration over court if they wanted to, but individuals would be given a choice in the matter and would not be denied their constitutional right to access the courts and have a jury trial. The bill is supported by the groups such as Public Citizen, Center for Responsible Lending, Consumer Federation of America, Homeowners Against Deficient Dwellings, Home Owners for Better Building, National Association of Consumer Advocates, National Consumer Law Center, National Consumer Coalition for Nursing Home Reform, National Employment Lawyers Association, and American Association for Justice. Opposition to the bill is led by the U.S. Chamber of Commerce's Institute for Legal Reform.

[edit] City of San Francisco's Lawsuit Against NAF

In March 2008, the City of County of San Francisco filed a lawsuit against the National Arbitration Forum on behalf of its citizens, accusing the arbitrator of unfairly favoring credit card companies in disputes with their customers. Drawing upon research by Public Citizen and others and the City's own investigation, the suit alleges that in specific cases the NAF approved an inflated award, improperly imposed attorneys fees, and did not respond to consumer requests to appear at an arbitration.

[edit] Wall Street Journal Reports on Allegations of National Arbitration Forum Bias

An April 21, 2008 article in the Wall Street Journal delved deeper into the allegations of bias on the part of NAF. 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." The Journal notes that one California appellate court ruled that an employee whose employer required all employee disputes to go before NAF did not 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."

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