Report probes arbitration process

John O'Brien Mar. 11, 2009, 11:35am

WASHINGTON (Legal Newsline) - A new report released by the Northwestern University School of Law says the process of settling consumer complaints through the American Arbitration Association is cost-effective, fair and quick.

Northwestern's Searle Civil Justice Institute released its findings Wednesday at the National Press Club in Washington. The institute says the study offers an empirical look at consumer arbitrations before the AAA.

"The study shows that due process protocols to protect consumers' procedural rights are routinely enforced in AAA consumer arbitrations," said Geoff Lysaught, director of the Searle Civil Justice Institute.

"Access to justice is provided in a relatively inexpensive and expeditious manner, and outcomes are not biased in favor of businesses that arbitrate on a repeat basis."

Pre-dispute arbitration clauses may soon be banned by the pending Arbitration Fairness Act, the institute says. However, the study, called "Consumer Arbitration Before the American Arbitration Association," showed that consumers with disputes worth less than $10,000 only paid an average of $96 to sort out the issue.

Chris Drahozal, chair of the SCJI Consumer Arbitration Task Force and John M. Rounds Professor at the University of Kansas Law, called the study the most comprehensive ever done on consumer arbitration.

"The next step will be to examine how consumer cases are resolved in traditional court proceedings," Drahozal said, "to provide a basis for comparison with AAA consumer arbitrations."

The study could be a valuable tool for lawmakers weighing the Arbitration Fairness Act, said U.S. Chamber Institute for Legal Reform President Lisa Rickard. The U.S. Chamber of Commerce owns Legal Newsline.

"Congress needs to carefully and fully review studies such as this before it considers bills like the Arbitration Fairness Act, which aims to eliminate an 84-year old system of consumer justice that has worked well for millions of Americans," Rickard said.

The report found that the average claimant spent $219 on the arbitration process for claims between $10,000-$75,000, and disputes were settled in an average of less than seven months.

Consumers won relief in 53.3 percent of cases for an average of $19,255, while business claimants won relief in 83.6 percent of their cases for an average of $20,648.

Successful consumers won 52.1 percent of what they claimed they were owed, while successful business claimants won 93 percent.

Another finding of the report showed that businesses that repeatedly went through the arbitration process were not penalized. Consumer claimants won some relief in 51.8 percent against repeat businesses and 55.3 percent against one-timers.

It also showed that the AAA was effective at identifying arbitration clauses with Due Process Protocol violations. It refused to administer at least 85 cases in 2007 because the business failed to comply.

In response to AAA review, more than 150 businesses have either waived problematic provisions or revised arbitration clauses to remove troublesome provisions.

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