DMI Blog

Kia Franklin

How many more arbitration stories do we need to hear?

Cross posted with some modification from TortDeform.Com:

On our civil justice blog, TortDeform, we've written extensively about the dangers of pre-dispute binding mandatory arbitration clauses in contracts between people and corporations. And lately this issue has been gaining ground in larger outlets like The Nation and Huffington Post.

The most recent article comes from Stephanie Mencimer at Mother Jones (Mencimer, a former TortDeform contributor has covered this topic extensively in the past). She details the horrific experience of a Maryland couple that thought they were entering into an exciting new enterprise, but found themselves sucked into an expensive and energy-draining case of franchise fraud. To make matters worse, the couple couldn't take their alleged defrauder, Coffee Beanery, to court. You got it--arbitration horror. From the article:

Hoping to recoup their losses, Welshans and Williams sued in Maryland federal court. But Coffee Beanery struck back in Michigan; a federal judge there ordered the couple—as required in the fine print of their franchise agreement—to instead take their dispute to a private arbitrator selected by the company. (Such binding arbitration clauses are boilerplate in contracts for everything from cell phones to credit cards.) Welshans had to borrow another $100,000 from his brother-in-law just to proceed with the process, which required steep fees up front.

The arbitrator who handled their case had some serious conflicts of interests:

JoAnne Barron, the arbitrator selected for the case, already knew the company and its lawyer, Karl Fink, who served 20 years as a judge on the state court where Barron has been employed as an attorney. She and Coffee Beanery also shared an accounting firm, a potential conflict given that the case partly involved the company's accounting practices. Barron had overseen at least two previous franchise disputes involving Fink, finding in the company's favor both times.

Surprise, surprise--the arbitrator ruled against them, sending the couple into hundreds of thousands of debt, some stemming from seriously steep fees for the court reporter/transcription (over $35,000), the arbitrator (almost $17,000), and most ridiculously, for the lunch and transportation costs of the other side's lawyers, and for the company's defense against a Maryland state investigation, to which the couple was not even a party.

In August the 6th Circuit Court of Appeals struck down the arbitrator's award, finding that the arbitrator had ignored state law. The company is appealing that decision.

Stories like this get me thinking. Imagine if we each refused to enter into any contract that forces us to sign away our right to sue... Would we have jobs? Cell phones? Homes? Cars? Would we even be reading this blog right now?

We need to pass the AFA, already. How many more arbitration horror stories must we hear before something is done?

Kia Franklin: Author Bio | Other Posts
Posted at 4:46 PM, Feb 26, 2009 in Civil Justice | Corporate Accountability
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