Public Citizen and Karakhanov’s attorneys have now had multiple opportunities to address this issue, and refuse to do so, instead repeating irrelevancies and trying to change the subject, and continuing to falsely claim that an American credit-card company stands in the shoes of everyone whom their customers do business with. We can safely assume that they have no justification for Karakhanov’s frivolous litigation and damages claim, and cede the point that mandatory binding arbitration agreements benefit consumers who don’t plan on bringing extortionate litigation.

This whole debate seems to be dancing around the central issue which, as Tom Domonoske pointed out, is whether MBNA’s actions were “reasonable.” Is it a reasonable interpretation to assume that a company can avoid a cancellation notice on a contract by refusing to accept a letter or that language requiring written notice at the “domicile” of a provider means the letter must actually be *delivered* by the person asking for a cancellation?

If one accepts that these interpretations are not reasonable, then one must accept that MBNA brought this whole mess upon itself. The rest of this discussion centers on whether an individual stands a better chance of winning a just result from a neutral court or an arbitration firm hired by the business with whom he is in dispute. I would put forth that the court/arbitration question is not particularly difficult to answer.

MBNA’s defense relies hyper-technical interpretations to avoid accountability. Such an approach may be successful in avoiding liability but only after accepting great costs that could be avoided simply by taking a common sense approach to justice and fairness.

Tom, my original post cites and links to all of the relevant documents and speaks for itself.

“The FCRA requires MBNA to perform an investigation. They did so. Johnson v. MBNA, . . . is not on point, and certainly does not stand for the proposition that every investigation MBNA ever performed again would be prospectively judged unreasonable. . . . there was no civil liability for a credit card company failing to get an investigation correct, only that it perform a reasonable investigation . . . .”

I respond as follows: When you write that the Johnson case is not on point, I am not sure what point you mean. When you write that MBNA is required to perform an investigation and that it did so, I wonder why you do not first identify what you later admit: that it is required to perform a “reasonable investigation.” You have not yet stated whether you believe MBNA’s investigation was reasonable or why, and whether it performed this reasonable investigation within the timeframes required by the Truth in Lending Act. This seems the point and I do hope you will address it. Your failure to state the facts about what investigation was done within the required timeframe makes me think we are miscommunicating about the point in issue. As for the Johnson case, the defense taken by MBNA does reveal what MBNA at that time thought was a reasonable investigation and thus does have relevance regarding its ideas on the point in issue. Will you take up the task of presenting the facts of the investigation that MBNA did within the required timeframe? By this I mean I am still not clear if during the required timeframe MBNA made the decision about the notice needing to be hand-delivered, or if that is an after-the-fact justification. Also, I do not how that required timeframe sits in relation to the defense mounted in Johnson.

Assuming that MBNA made the contract interpretation decision during the required timeframe, I am not sure why you have not posted the exact language in the contract that it was construing when it reached this decision. Such facts are the way to present that the required investigation was done. Without such facts, all that happens is that people talk past each other and miscommunicate.

By the way,the name “Michael Middleton” was typed on the initial award, right above the signature line. I have always wondered by Mark Mittleman (who supposedly drafted the arbitration award) would type somebody’s else name on it and then give it to that other person to sign. I have also wondered why the person who received somebody’s else’s arbitration award would nevertheless sign it, even though he was never involved with the case. One thought has occurred to me though — perhaps somebody at NAF headquarters prepared the award and then sent it to Prof. Middleton, who was mistaken for Mark Mittleton, for signature. It would explain why a similar sounding name was placed on the arbitration award and sent to the wrong arbitrator. However, it does not explain whether the NAF employee who prepared the award also drafted substantive findings, and it certainly does not explain how Prof. Middleman could proceed to sign the award without being much more than a rubber stamp. If you honestly think about what happened, I think any objective person would be appalled.

NAF’s handling of this case smacks of fraud; however, since there was no “smoking gun” or whistle-blower, NAF got away with it. If you like the system as it is, you’ll always find ways to explain away that which is truly indefensible. It would just be nice to hear those on the other side admit for once that between consumers and corporations, they would rather see the consumer get screwed. This is EXACTLY what happened to Alex Karakhanov.

The entire point of arbitration is that it avoids the expense of court proceedings. That advantage is nullified if the loser of an arbitration is permitted to relitigate the case in court. The failure of Public Citizen to honestly acknowledge this argument and instead make misleading demagogic claims about the standard of review of arbitration disserves the consumers for whom it purports to advocate, and demonstrates that it is effectively an Astroturf front for trial-lawyers.

Mahlon, again, empirical studies have shown that consumers do better in arbitration than in court on average. Because it’s the marginal consumer that vendors must satisfy, so long as some consumers are not illiterate, all consumers are protected in a free market. Just because some consumers are not “literate” as you put it is no reason to punish all consumers by depriving them of consumer choice.

Let me be clear. Based on my personal experience, I do not believe, and cannot accept the assertion that arbitration of consumer disputes is fair to all parties.

If this was not a mandatory arbitration provision then my criticism is misplaced. Also, if this was a knowingly accepted contractual provision, I have no problem with it. My problem is with the guerrilla contracting methods employed by many of these companies. I realize that everyone should read before they accept, and I agree with that in principle. But let’s face it, government schools don;t turn out many truly literate graduates.

These are the facts of his case. In June 2002, on a visit to Mexico, Karakhanov purchased a time share for about $10,200. The contract permitted him to cancel and receive a full refund by providing notice in “writing at the domicile of the supplier” within 10 working days.

Karakhanov returned to the United States, consulted a lawyer and decided to cancel the contract. Six calendar days after making the purchase, he sent a cancellation notice to the time share company by fax and Federal Express. On the same day, Karakhanov notified credit card company MBNA (whose card he had used to make a portion of the purchase) that he was attempting to cancel the contract.

The time share company refused to accept Karakhanov’s FedEx letter until the 10-day deadline had passed and refused to cancel the contract. Karakhanov complained to the two credit card companies he used to make the purchase. Citibank charged its $6,200 portion back to the seller. MBNA balked at charging back its $3,972 portion, making the absurd argument that Karakhanov was obligated to *personally* deliver the cancellation letter to the time share company in Mexico.

Karakhanov set out to clear the debt. Rather than relenting on sticking Karakhanov with the roughly $4,000 charge, MBNA chose to chart a litigious course that would end up costing many times more than the amount at issue. MBNA first took advantage of a clause in its agreement with Karakhanov to force him to litigate the dispute in binding mandatory arbitration – a process to be handled by a private company hired by MBNA. The arbitrator ruled that MBNA was not liable. This is a precious bit of legalese he used to justify his decision: MBNA, the arbitrator wrote, had determined that the time share company “had a legally and factually colorable, if not necessarily conclusive or ethical, reason to disallow the cancellation under the terms of the contract.” (Fees for the arbitration alone amounted to more than $8,000.)

Karakhanov went to court to try to get the arbitration ruling tossed out. He put forth several arguments, starting with the fact that the written opinion was signed by a different arbitrator than the one who heard the case. MBNA’s defense of the arbitration ruling lent insight into how little protection the process affords individuals. For example, the MBNA’s lawyers cited precedent that an arbitration award “must be confirmed even if a court is convinced the arbitrator committed a serious error, so long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority.” The arbitration ruling was upheld.

Karakhanov had one other avenue to seek redress: to challenge the reporting agencies that were holding his credit rating hostage. Here, he was not bound by an agreement to settle his dispute in arbitration. And it was through this process that Karakhanov was able to win a settlement. Subsequently, MBNA stopped billing him for the $3,972 debt.

And this case is the poster child for the fairness of binding mandatory arbitration?

This is absolutely false, as MBNA does not write off “bad debts” instantaneously. Karakhanov, faced with a bill from MBNA, refused to pay it. MBNA reported it as past due, then reported it as a bad debt. Then Karakhanov sued for $200,000 over the $4000 he had refused to pay.

Many other false statements in Mr. Stoddard’s account are refuted in the MBNA brief; shortly after the brief was filed, Karakhanov withdrew his lawsuit rather than risk sanctions.

even though the arbitrator ruled against Alex, he still ordered MBNA to pay the arbitration fees. Why do you think that is Mr. Frank?

Arbitrators typically split the baby in this fashion. It’s one of many reasons why consumers are better off with arbitrators than in court. Vendors put up with the baby-splitting because the procedure is so much more efficient and avoids the extortionate aspects of litigation.

I would like to see your proof that consumer cases like Alex’s are more expensive to try in court than in arbitration

The proof is in the market: companies would not choose the more expensive option of arbitrating if litigation were cheaper. But there’s also direct empirical evidence that we’ve regularly posted about on Overlawyered.

Alex lost his case in arbitration, so you should rejoice.

Unfortunately, the litigation lobby is misusing Alex’s case to try to deprive consumers of choice and lower prices. It’s important to set the record straight, since Public Citizen isn’t going to do it.