When Is the Temptation Too Much?

Like Sarah (see her 10/8/07 post), I also noticed that Public Citizen released a report on the credit card industry’s use of mandatory arbitration clauses.  The report uses plenty of inflammatory language:  consumers are being “forced into the shadowy world of binding mandatory arbitration,” arbitration firms “hire arbitrators to rubber-stamp rulings that favor business,” and ultimately, binding mandatory arbitration is “a deliberate strategy to substitute a secret, pro-business kangaroo court for an open trial on the merits of a claim.”  ADR, meet Raymond Chandler. 


But there’s more here than hyperbole.


For a while now, people have raised concerns about the “structural bias” that arbitral firms and arbitrators may show toward the repeat players who serve as their primary sources of cases and income.  (The same sorts of concerns also have arisen in cases involving administrative adjudication and, I believe, are likely to arise in mediation that is sponsored by a particular agency or corporation.)  In Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), a plurality of the Supreme Court declared that “any tribunal permitted by law to try cases and controversies not only must be unbiased but also must avoid even the appearance of bias [my emphasis].”  Earlier, in Tumey v. State of Ohio, 273 U.S. 510 (1927), the Court noted that “the requirement of due process of law in judicial procedure is not satisfied by the argument that men of the highest honor and the greatest self-sacrifice could carry it on without danger of injustice.”  Instead, the Court announced that “[e]very procedure which would offer a possible temptation to the average man as a judge [again, my emphasis] to forget the burden of proof required . . . or which might lead him not to hold the balance nice, clear, and true . . . denies . . .due process of law.”  Despite the low threshold for appearance of bias that is suggested by these quotes, most courts seem to respond skeptically to vague claims that “structural bias” is sufficient to demonstrate the “evident partiality” required by the Federal Arbitration Act for vacatur of arbitral awards.  The courts demand concrete evidence that will move these claims of bias from the realm of speculation to plausibility. 


Public Citizen obviously is advocating for its own position.  Nonetheless, its report–which cites to information from court filings and case reports published by the National Arbitration Forum (NAF) on its website to meet California’s disclosure requirements—is filled with concrete data.  Particularly striking to me are the data regarding the extent of arbitral firms’ reliance upon particular credit card companies for cases, the size of the fees paid by credit card companies, and the large numbers of cases handled by a small number of individual arbitrators.  Public Citizen reports, for example, that during the period from January 1, 2003 through March 31, 2007, a full 53% of the nearly 34,000 cases handled by NAF in California involved holders of MBNA credit cards.  Public Citizen also reports that between January 1998 and November 1999, NAF received $5.3 million from just one credit card company, First USA.  And according to Public Citizen, between January 1, 2003 and March 31, 2007, NAF’s busiest ten arbitrators heard between 699 and 1,332 cases.  Both the plurality and concurring opinions in Commonwealth Coatings envisioned a rather different sort of arbitrator from those highlighted here, “men of affairs, not apart from but of the marketplace” whose income from “their work deciding cases” would be incidental to their work as members of an industry.


It’s important to add that these data do not show that any arbitrator or arbitral firm handling credit card matters is biased—and Public Citizen goes too far in making such assertions.  But that is not the point.  If the numbers reported by Public Citizen are accurate—and I must admit I have not had the opportunity to validate them—I fear that arbitral firms and arbitrators involved in the mass processing of cases will find it increasingly difficult to argue that people’s concerns about the appearance of bias are just not plausible.


Nancy Welsh

One thought on “When Is the Temptation Too Much?”

  1. My firm handles a lot of consumer cases. While we do not handle individual debt collection defense cases, generally, we have been inundated for the last several years with angry consumers who feel that they have gotten a raw deal from the National Arbitration Forum in cases that it handles for MBNA. We’re getting more complaints from consumers over this issue than the total number of case intakes we get on all other consumer issues. Our experience collaborates the Public Citizen report’s allegations — we repeatedly see intakes where people have strong evidence that they were victims of identity theft but the NAF just entered its usual order giving MBNA the full amount of its claim, cases where people were being pursued for zombie debts way past the limitations date (with no recent payments to re-invigorate the limitations period) where NAF nonetheless enters its usual award giving MBA the full amount of its claim, and a variety of similar abuses. Public Citizen isn’t inventing this scandal, it has just pulled together hard numbers to validate an issue that nearly every lawyer who represents individual consumers has been hearing about for years.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.