Ted Folkman, “Some Thoughts On Consumer Arbitration”

The campaign against consumer arbitration has sought over the years to establish a number of propositions: that the process favors business over consumers, that the arbitrator is in the pocket of the corporate repeat player, that you can’t get discovery in arbitration, that arbitration is unfairly secretive, and so forth. Ted Folkman, who in addition to being a practicing commercial lawyer and longtime blogger is also an arbitrator who serves on the American Arbitration Association’s commercial and consumer panels, has some perspective to offer. [Letters Blogatory]


  • I mean he says it all right here: “The rules of evidence do not apply.”

    Nobody who professes to uphold the laws of this nation should be comfortable forcing every American into binding and irreversible legal proceedings where the rules of evidence do not apply. If we are to be a nation of laws, the law must apply to everyone.

    (Of course, given Commissioner Petersen’s performance before the Senate Judiciary Committee, it’s unclear whether a federal judge who is familiar with the basics of the rules of evidence is a given either.)

    I’ll also note that Folkman’s conclusion does not entirely match the premise that this is about the “campaign against consumer arbitration.” He’s clear that “the foundation of arbitration is the consent of the parties.” It makes a mockery of the term to believe I consented when I was forced to sign an arbitration agreement at work, on pain of losing my job. It makes a mockery of the term to believe someone consented who opens a bank account, then is handed a booklet of terms and conditions with an arbitration clause tucked inside. The objection has never been to consumer arbitration by the mutual consent of both parties, it is to forced consumer arbitration. If the system is really as wonderful for both sides as advocates claim, surely everybody would be lining up to choose it over court voluntarily, right? Competition is healthy; let disputants choose, and maybe both systems could learn a thing or two from the other.

    • You know what *isn’t* having something forced on you, in any legal sense here relevant? When you sign up for a mortgage or other contract that has arbitration as a term, and it later happens.

      You know what *is* having something forced on you? When you sign up for a mortgage or other contract that specifically rules out some forum in case of future dispute, but legislators or the courts force that forum on you anyway.

      Stop misusing the word “force.”

      • This is a fundamental disagreement, so we can just leave it here, but I believe the legal system of this country is simply there for all, rather than a forum that can be forced upon someone. This isn’t about whether a case is heard in state or federal court; it’s about whether the rules of evidence even apply. Perhaps the common burglar would prefer another approach than being “forced” into criminal court, but a shared justice system is part of the deal of living in our society. Of the government’s many intrusions into our lives, somehow the idea that we’re all subject to the same court system primarily seems to offend banks, cell phone companies, and the like while being favored by the vast majority of Americans.

        If “the foundation of arbitration is the consent of the parties,” surely the present system falls woefully short. where according to the CFPB’s consumer arbitration study, 75% of respondents did not know if they were subject to an arbitration clause, more than half who thought they knew were wrong, and just 7% who were subject actually understood it meant they could not sue in court. In the St. John’s arbitration study, 14% of respondents who were just shown a consumer contract with an arbitration clause actually understood it meant they couldn’t go to court, while 89% of respondents who claimed to have never agreed to such terms before actually had. That’s not consent in any meaningful way; it’s not even basic comprehension.

        This blog is dedicated to “chronicling the high cost of our legal system.” It’s high; that’s why I’m here. But there’s also a high cost to society when people believe the system is unfair and does not represent them. A majority of people believe they should be able to take their employers, financial institutions, and nursing homes to court if they really need to. Perhaps after a broad-based public education campaign on the underappreciated principle of freedom of contract, they’d change their minds. Perhaps not.

      • Is there any point where the balance of power is such where the consumer has no meaningful choice? Are there any circumstances where you draw the line?

      • You know what *is* having something forced on you? When you sign up for a mortgage or other contract that specifically rules out some forum in case of future dispute, but legislators or the courts force that forum on you anyway.

        “I want to arbitrate but they don’t want to arbitrate, therefore I must go to court” does count as force, yes – but that’s not on my list of unacceptable force. It’s impossible to have arbitration agreements that cover every scenario and every person, so you could be forced into court whether or not the courts and legislators allow such pre-dispute provisions. And if both parties want to arbitrate a dispute, they can still do so, whether or not such pre-dispute provisions are valid.

    • Thanks, Walter, for covering my post, and thanks to Mx for the comment.

      With regard to consent: I’m not taking a view on whether the courts are right to enforce agreements to arbitrate in the consumer context as readily as they do. As I said in the post, that’s above my pay grade. Given that the courts generally do enforce these agreements to arbitrate, my question was: should the consumer assume that the arbitration process itself is rigged against him, or is the process fair? So your critique about consent could be right and yet my points about the process itself could also be right.

      With regard to the law of evidence, I’ll give you an example of what this means in practice. I had a case a while ago where the commercially dominant party was trying to persuade me that a minority owner of a small business was properly fired. This party offered a whole bunch of documents, some written by one of its witnesses, some written by another employee who was not going to testify, that were meant to support its case. If we were in court, the analysis would have been: (1) are they hearsay? (Yes). (2) are they admissible as business records nevertheless? (No, for various reasons). In the hearing, I didn’t ask whether they were technically admissible—I asked how much weight I thought they deserved. In the end, I gave them no weight. I did not find the business’s main witness credible, and she didn’t become more credible merely because she had repeatedly written her story down. And I was unwilling to credit the documents written by a witness who could have been present to testify but wasn’t, given that they had not been written in the ordinary course of business. So I arrived at the same conclusion that a court would have reached. But there are many other cases where the rules of evidence require authentication of evidence that really isn’t in reasonable dispute, or where they require exclusion of technical hearsay that in the real world is thought of as reliable, etc. the arbitration process here is more flexible than the courtroom, which poses risks but which also has benefits.

  • I think there’s a great likelihood that you’re both right… To an extent. 😉

    Laws, which are governmental dictates, are force. Removing options from the “free” market and dictating that the government’s judicial system be used… Is force.

    Within the “free” market, while I may not be forced by a company to purchase their service or product, if either all companies require arbitration or there are no other options available, I would say its the lack of options that is forcing you to sign the contract. In many ways, this could also be the fault of the government, via laws (see above) that are designed to restrict the free market, maybe for social reasons… Or perhaps more likely regulatory capture?

    As to the “rules of evidence” concern… I view arbitration as an independent 3rd party deciding a disagreement between 2 parties, neither with power over the other that would affect the proceedings. “Rules of evidence” in judicial proceedings though, are meant to create and enforce some amount of fairness on proceedings where 1 party has a lot of power and influence and leverage over the other. Even with the “rules of evidence”, there is still a power imbalance.