Posts Tagged ‘arbitration’

Consumer and employee win rates in arbitration

For example, a study published in the Dispute Resolution Journal compared 125 employment discrimination lawsuits filed in the Southern District of New York, with 186 arbitration claims involving employment disputes in the securities industry. The data showed that employee claimants prevailed 46% of the time in arbitration compared to 34% in federal court. The median monetary award amount was slightly higher in arbitration, and the median time from filing to judgment was 16.5 months in arbitration compared to 25 months in litigation.

Also, a 1998 comparison of arbitration and litigation published in the Columbia Human Rights Law Review noted that employees prevailed over employers in 63% of employment arbitration cases filed with the American Arbitration Association between 1993 and 1995. To compare, only 14.9% of employees who brought cases to federal district court in 1994 prevailed in their litigation. The average duration of an arbitrated claim was 8.6 months, compared to 2.5 years in litigation.

Source, citing Michael Delikat & Morris M. Kleiner, An Empirical Study of Dispute Resolution Mechanisms: Where Do Plaintiffs Better Vindicate Their Rights?, 58 DISPUTE RESOLUTION JOURNAL 56, 57-58 (2004); and Lewis L. Maltby, Private Justice: Employment Arbitration and Civil Rights, 30 COLUM. HUM. RTS. L. REV. 29, 45-48 (1998).

California data shows that when consumers bring arbitration claims against businesses, the consumers prevail in 65.5% of cases that reach a decision. To compare, buyer plaintiffs litigating contract claims in the 75 largest American counties prevailed 61.5% of the time overall, and 60.9% of the time in cases decided by bench trials. When businesses bring arbitration claims against California consumers, the businesses prevail in 77.7% of cases that reach a decision. To compare, seller plaintiffs litigating contract cases in the largest 75 counties prevail 76.8% of the time overall and 78.9% of the time in cases decided by bench trial.

These results show that the win rates for consumers and businesses bringing claims in arbitration are within just a few percentage points – and, sometimes, just fractions of a percentage point – of the win rates of individuals and businesses bringing contract claims in court.

Source. See also the Ernst and Young study showing consumers doing better in arbitration than in court. More data available at the National Arbitration Forum page.

Update, Dec. 17: The National Arbitration blog has more links, and the blog appears to be chock-full of resources. For other Overlawyered posts on arbitration, see our new arbitration section.

Arbitration and the free market

Let us imagine a writer for a left-wing magazine, we’ll call her Mephanie Stencimer, who wants to buy a car. But she has particular tastes: she doesn’t just want any old car. She wants a three-wheeled vehicle, perhaps because the feng shui is better, perhaps because she wants to spend less money on tires forced upon her by Big Rubber. She goes from car-dealer to car-dealer around town, but every single one of the dastardly businessmen insist that her only choice is a four-wheeled vehicle. She patiently explains the aesthetics of the triangular approach, but they shrug their shoulders and tell her it’s out of their hands and she has to have a four-wheeled car or nothing. Finally, she surrenders her preference for the three-wheeled vehicle, and takes a model with the extra wheel.

If you were to take seriously the arguments of Stephanie Mencimer at Mother Jones and the commenters there, and perhaps the occasional judge, this is an outrageous “contract of adhesion” that should be outlawed: Stencimer didn’t have a choice, didn’t have the bargaining power to make the auto-dealer sell her a three-wheeled car, and was forced to buy an extra wheel. But is this really a problematic failure of the market that requires government intervention?

Read On…

“Halliburton”, gang rape, and fear of arbitration: the Jamie Leigh Jones case

(Update, December 16: And welcome, Consumerist readers. For more on the anti-consumer campaign against arbitration, see the Overlawyered arbitration section. Consumerist’s headline “Mandatory Binding Arbitration Means Alleged Halliburton Rapists Could Go Free” is entirely false. Aside from the fact that it does not appear the alleged rapists worked for Halliburton, the issue of whether Jones is contractually obligated to arbitrate her employment dispute with her employer is entirely unrelated to whether the government underinvestigated a criminal complaint against rapists. They are two entirely separate issues. It’s not the first time that Consumerist has reprinted misleading arguments against arbitration—a shame, because mandatory binding arbitration helps consumers, and Consumerist should care more about consumers than the trial lawyers who are lobbying for an anti-consumer law.)

In February 2006, Jamie Leigh Jones filed an arbitration complaint, complaining that, for her administrative assistant job with KBR in the Iraq Green Zone, she was placed in an all-male dorm for living arrangements, and a co-worker sexually assaulted her. (KBR says the co-worker claimed the sex was consensual, though Jones claims physical injuries, such as burst breast implants and torn pectoral muscles, that are plainly not consistent with consensual sex. The EEOC’s Letter of Determination credited the allegation of sexual assault.)

Fifteen months later, after extensive discovery in the arbitration, Jones, who lives in Houston, and whose lawyer is based in Houston, and who worked for KBR in Houston, sued KBR and a bunch of other entities (including Halliburton, for whom she never worked, and the United States), in federal court in Beaumont, Texas. The claims were suddenly of much more outrageous conduct: the original allegation of a single he-said/she-said sexual assault was now an allegation of gang rape by several unknown John Doe rapists who worked as firemen (though she did make a claim of multiple rape to the EEOC, though it is unclear when that claim was made); she claims that after she reported the rape, “Halliburton locked her in a container” (the EEOC found that KBR provided immediate medical treatment and safety and shipped her home immediately) and she threw in an allegation that a “sexual favor” she provided a supervisor in Houston was the result of improper “influence.” (But she no longer makes the implausible claim that she was living in an all-male dorm in Iraq.)

The US got the claim dismissed quickly (Jones hasn’t yet followed the appropriate administrative claims procedure); the case was transferred back to Houston where it belonged (the trial lawyer’s ludicrous brief in opposition didn’t help). But the fact that the defendants are pointing out that the lawsuit over a pending arbitration violates 28 U.S.C. § 1927 and are asking for the court to mandate only one single proceeding in arbitration rather than a multiplicity of parallel proceedings, is now being treated as a cause célèbre by the left-wing blogosphere in its campaign against the contractual freedom to arbitrate. (Note that two elements explicitly designed to arouse the ire and inflame the passions of the left—Halliburton and gang-rape—only came about after Jones switched attorneys.)

The Public Citizen blog complains that “the allegations of corporate and governmental misconduct will never see the light of day” in arbitration. Which is absurd:

1) For crying out loud, her case is on 20/20, which, as is its ken, happily unquestioningly gives the plaintiffs’ opening statement in handy manipulative video newsertainment form without mentioning any of the counterevidence. That sort of widespread publicity is hardly the lack of “light of day.” (Update, Dec. 15: the KBR arbitration procedure provides a transcript without confidentiality restrictions, permitting exactly the same publicity as an open court proceeding.)
2) If the government fails to offer Jones an adequate settlement for their alleged bungling of the criminal investigation, she has recourse under the Federal Tort Claims Act against the federal government—though she likely will not have any more recourse against them than any other criminal victim does when the government fails to protect them against crime or prosecute the criminal.
3) If the court system is about having recourse for injuries, she has that recourse. The judicial system is not for public storytelling; if you want to send a message, use Western Union (or ABC News, as the case may be).

20/20 repeats the meaningless claim that “In recent testimony before Congress, employment lawyer Cathy Ventrell-Monsees said that Halliburton won more than 80 percent of arbitration proceedings brought against it”—meaningless because (1) it doesn’t include the cases that settle before arbitration with a favorable result to the employee and (2) there’s no comparison with how well such employees would do in the far more expensive forum of litigation (where the vast majority of employees lose at trial as well). (Update, Dec. 16: KBR (which is not Halliburton) says that 96% of employee claims settle before they get to an arbitrator.)

20/20 also adds the claim (absent in the arbitration and in the otherwise-lurid civil complaint) that Jones was threatened that she would be fired if she sought medical treatment.

Read On…

Scruggs indictment V

Roger Parloff at Fortune Legal Pad is out with some informative analysis based on an interview with attorney John Griffin Jones, who filed the fee suit against Scruggs. Among the questions explored: how high were the stakes in that suit, and why might the defendants have been keen on an arbitration order? Relating to the latter point, Parloff writes:

Scruggs’s lead counsel, John Keker of Keker & Van Nest, adds that the notion that Scruggs might have wanted to keep the case out of public view by putting it into arbitration is “absurd as a motive” for a bribe, since the case “was certainly going into arbitration” and that was “the only place it could possibly be.”

Which raises the question: if an order for arbitration was a foregone conclusion, why are Scruggs chums floating the theory that attorney Timothy Balducci thought he could impress Scruggs by getting such an order from Judge Lackey?

The WSJ law blog reports that Balducci was arraigned Tuesday and has asked to withdraw his law license. On the location of his arraignment, see Mississippi blogger Folo (earlier). (Update: Whoops, actually Mississippi expatriate, see comments.) Balducci was named to represent himself, drawing many puzzled reactions. (Update: NE Mississippi Daily Journal has more on Balducci’s arraignment and likely cooperation, via Folo.) Also, the WSJ law blog interviews David Rossmiller (who himself has several new posts up) and reports that the Scruggs firm may be withdrawing from Scruggs Katrina Group cases after all. (Update: confirmed in this Sun-Herald story).

This Sunday profile of Judge Lackey in the Sun-Herald notes that he’s “a deacon at First Baptist Church and a member of a state commission charged with ensuring judicial integrity,” which as several commentators note might indicate that he was a risky one to approach with a proposal for corruption.

A commenter at David Rossmiller notes whose interests are served by the pre-emptive “character assassination of Balducci” in recent coverage and also writes:

Patterson resigned Oct. 18, 1996 after pleading guilty to filing false documents to avoid paying taxes on a Range Rover. And Grisham thinks these folks are super sophisticated, why?…

And how bad does the spin from last week look? The FBI did not find “the document” and Scruggs is not withdrawing from Katrina cases, and then a few days later he is withdrawing. By the way, the FBI removed computer data which is most likely being analyzed right now, so who the heck knows what they have found. Maybe “dead bodies”? …

Earlier coverage of the indictment here, here, here, and here.

Scruggs indictment, days 3-4

Speculation continues to mount that central bribery-scandal figure Timothy Balducci may be cooperating with prosecutors, and perhaps has been doing so for some time; Balducci had not yet been arraigned as of this weekend, and the indictment quotes extensively from conversations he held with other defendants, in addition to those that took place in Judge Lackey’s bugged chambers. (Peter Lattman and Ashby Jones, “In Scruggs Probe, Focus Turns to Another Lawyer”, WSJ, Dec. 1)(sub-only). In the latest of his extensive posts on the case, David Rossmiller adds to the picture: “From the verbatim quotes by Balducci given in the indictment, one logically can surmise that investigators had substantial recorded evidence that would have given them tremendous leverage over Balducci in obtaining his cooperation against the others.” In addition, certain elements in the indictment’s description of Balducci’s actions suggest that by mid-October, presumably flipped by investigators, he had begun taking steps that could be used to document targets’ knowing participation in the conspiracy (in particular, his return to Dickie Scruggs to finance a purported second-round bribe, and his statement in the presence of Zach Scruggs and Sidney Backstrom that “we paid for this ruling”).

Rossmiller also analyzes the underlying Jones v. Scruggs dispute over legal fees, in which the Jones firm, formerly one of the five participants in the Scruggs Katrina Group (SKG), alleges that it was “frozen out” and ejected by the remaining four firms, allotted only token fees after shouldering the substantial work of case briefing. Why would it have been advantageous to the Scruggs firm to have Judge Lackey shunt this dispute into arbitration? One key reason is that proceeding with a court battle, even if successful, might have risked exposing to the public many of the internal workings of SKG and perhaps also of Scruggs’s own firm. (Having read the Jones complaint, I would note that Jones was alleging that Scruggs had made a common practice of squeezing collaborating lawyers out of their fee shares in earlier, unrelated litigation during his career. The evidence put forth to support such an allegation, apart from whether it turned out to support a claim for punitive damages, might result in public airing of all sorts of messy and embarrassing episodes from the past.)

John Jones and Steve Funderberg, the lawyers whose firm sued Scruggs et al in the underlying Jones v. Scruggs suit, have given an interview to the Mississippi press; Jones says he knows Scruggs well and has represented him in court, but that the relationship changed drastically “when the money hit the table”; of go-between Balducci, Funderberg said, “Knowing Tim Balducci as I do, I am utterly flabbergasted that he would ever be a part of something like that or believe he could ever get away with something like that”. (Jon Kalahar, “Former Scruggs Colleague Says Money Changed Him”, WTOK, Nov. 30).

At Y’AllPolitics, Alan Lange traces many of the recurring connections between the dramatis personae and notes that the “whole crowd” was deeply involved in the much-criticized MCI contingency-fee back taxes negotiation, which we posted on at the time at Point of Law. “Attorney General Jim Hood allowed his largest campaign contributor, Joey Langston, to be the plaintiff lawyer and also appointed Tim Balducci as a Special Assistant Attorney General in that case”. Langston, for whom Balducci used to work, is now among lawyers representing Scruggs.

Some noteworthy reactions to the indictments: “This is maybe the worst day of my life,” says longtime Scruggs friend Don Barrett, quoted in an Associated Press piece that also rounds up some of the high points of Scruggs’ career (Michael Kunzelman, “Scruggs’ career in jeopardy”, AP/Hattiesburg American, Dec. 1). “I’m disappointed in him,” Katrina client Lyman Cumbest of Pascagoula, who’s suing State Farm, said of Scruggs. “With all the money he had, he didn’t have to bribe a judge. He’s got more money than he could ever spend.” (“FBI probe in judicial bribe case to continue”, Jackson Clarion-Ledger, Nov. 30). Byron Steir at Mass Tort Litigation Blog comments (Nov. 30):

If true, all of these allegations suggest remarkable hubris in at least some of the top plaintiffs’ lawyers. One wonders about the effect of a lifestyle of private jets and multiple wins of multiple millions (or tens of millions) in fees. One also wonders about the effect of high-risk, winner-take-all, contingency fee litigation. Brash and aggressive personalities seem to thrive in such an environment — but they too must keep in mind that lawyers ultimately serve the client (not the other way around) and that no one (especially not the lawyer) is above the law.

And more: “It just boggles the mind,” said Biloxi trial lawyer Jack Denton. “Here is a man who has had an enormous amount of success, who reached a level very few attorneys, if any, have reached. Why would he risk everything over a legal dispute over attorneys’ fees?” David Rossmiller, quoted in the same story, has one possible reply, which is that people may begin reevaluating “how this amazingly successful man got to be so amazingly successful.” (Richard Fausset and Jenny Jarvie, “Katrina lawyer at the eye of a storm”, Los Angeles Times, Nov. 30)(& welcome Tom Kirkendall readers).

Scruggs indictment, day two

David Rossmiller at Insurance Coverage Blog (who’s also a co-blogger of mine at Point of Law) continues to be the must-read source on this sensational story and its fast-breaking developments. He’s posted a PDF of Jones v. Scruggs, the lawsuit before Judge Lackey by lawyers who say they were cut out of Katrina fees. He also offers some answers to the question posed by a commenter at Above the Law, who asks, “What kind of cheap-o offers a $40,000 bribe to resolve a dispute over $26.5 million in attorneys fees?!” (To begin with, the ruling sought from Judge Lackey would not have disposed of the fee claim, just sent it to arbitration.) Martin Grace scents a ripe irony in the fee-dispute lawsuit, noting that it charged Scruggs with engaging in the same sorts of tactics toward fellow lawyers that he regularly accused insurers of practicing toward their insureds: “lowballing claims and producing fake documents in support of the claims.”

Jeralyn Merritt at TalkLeft writes that Judge Lackey “presumably [agreed] to tape his calls with the defendants. I suspect the F.B.I. also got a wiretap on Scruggs’ or his co-defendants’ phones, since there are several calls described in the Indictment that don’t involve Judge Lackey. Getting a wiretap on a law firm’s telephone is unusual — particularly due to the substantial and cumbersome minimization efforts required to ensure that calls of clients and lawyers unrelated to the criminal investigation are not overheard.” At the Jackson Clarion-Ledger, columnist Sid Salter has more on co-defendants Tim Balducci and Steve Patterson. A PDF of the indictment is here.

The internal cohesion of the anti-insurer lawyer consortium known as the Scruggs Katrina Group (SKG) appears at present to be under extreme pressure. Rossmiller reports that “policyholder lawyers in general tell me they are seething over Scruggs” and in particular that at least some lawyers who have been his allies “don’t want their names and their cases tarnished with the Scruggs name”. On Thursday an extraordinary contretemps developed in which SKG co-founder Don Barrett of Lexington, Miss. sent a letter (PDF) to a judge hearing Katrina cases against State Farm, suggesting that SKG was being re-formed without Scruggs and would take over the litigation with he, Barrett, as lead counsel (Lattman, WSJ). Within hours, Scruggs had dispatched a letter of his own (PDF) saying that Barrett was misinformed, that it was up to plaintiff families to decide who they wanted to represent them, and that many would undoubtedly wish to retain Scruggs (second posts at Lattman and Rossmiller). As of Thursday evening, the Scruggs Katrina Group website has prominently posted the Scruggs letter but not the Barrett one; one might speculate that if some sort of split within SKG is imminent, the website operation, at least, may have maintained loyalty to the Scruggs side.

On the statewide political repercussions, see Majority in Mississippi, Sid Salter at the Clarion-Ledger, and Chris Lawrence at Signifying Nothing, who also quotes Salter in a comment thread predicting: “The next sob story will be that Dickie’s indictment is about Bush administration persecution of trial lawyers and a rehash of Paul Minor’s problems.” Take it away, Adam Cohen and Scott Horton!

On political repercussions nationally, it didn’t take long for the Hillary Clinton campaign to cancel the Scruggs-hosted fundraiser that was to have been headlined by husband Bill Clinton next month (Associated Press, WSJ Washington Wire). The North Dakota political blog Say Anything thinks politicos in that state should return the (rather substantial) sums they have received from Scruggs and colleagues, but one may reasonably assume that such calls will be ignored, just as elected officials have been in no hurry to divest themselves of the booty collected from such figures as felon/mega-donor William Lerach.

Where are Scruggs’s admirers and defenders? One can only suppose that somber music is playing in the corridors at the business section of the New York Times, which has run one moistly admiring profile of the Mississippi attorney after another in the past couple of years. As of 3 p.m. Thursday, the Times’s very restrained story on the indictment was in a suitably inconspicuous position on the paper’s online business page — the 15th highest story in the left column, in fact. The story, by serial Scruggs profiler Joseph B. Treaster, quotes the relatively ambiguous line attributed to defendant Timothy Balducci — “All is done, all is handled and all went well.” — but omits the far more smoking-gunnish “We paid for this ruling; let’s be sure it says what we want it to say.” And things are anything but upbeat at Mother Jones, where Stephanie Mencimer concedes that she finds the indictment “pretty damning“.

More links: Paul Kiel, TPM Muckraker (indictment “devastating… it doesn’t look good for Scruggs”); Legal Schnauzer (defender of Paul Minor distinguishes the two cases); WSJ interview with Judge Lackey (sub-only) and editorial (free link), Rossmiller Friday morning post (certain details in indictment suggest that a conspiracy insider, possibly Balducci, may have cooperated with prosecutors)(& welcome Instapundit, Point of Law, TortsProf, Adler @ Volokh, Open Market, Y’allPolitics, Majority in Mississippi, Rossmiller readers).

ADR? Them’s fightin’ words

The recent controversy over attempts by organized lawyerdom to ban or restrict predispute arbitration contracts led to a Wall Street Journal editorial (“Party at Ralph’s”, Nov. 7) which in turn drew forth the following letter to the editor from David S. Rowley of San Diego (Nov. 14):

Although you got the lawyer-money connection in the Democratic anti-arbitration strategy exactly right, you skipped over the bodacious arrogance inherent in the phrase “alternative dispute resolution.” ADR is lawyer-speak for anything other than a lawsuit, making a lawsuit the “regular” way. ADR gets about the same treatment from the bar as “alternative” medicine gets from doctors.

Every time people sit down and reason together, some lawyer is losing money. Why not ban that? A lawsuit is the most expensive, time-consuming, disruptive and unpredictable of all dispute resolution models. That so many people are so quick to sue suggests that the lawyers have sold the masses on the “regular” way. What a tragic commentary on our times.

Earlier: Oct. 18. More thoughts on arbitration: ADRQueen, Oct. 16.

November 8 roundup

Behind those “unfair arbitration” numbers

Last month Public Citizen drew extensive and largely uncritical publicity for a report blasting credit card arbitration. The report’s most dramatic number, picked up by many papers, was based on newly available California data: “In a sample of 19,300 cases, arbitrators ruled in favor of consumers 5 percent of the time.” (Phuong Cat Le, “Binding arbitration a loser for consumer”, Seattle Post-Intelligencer, Sept. 27). Such results, charged a Public Citizen official, show “a stunning bias against consumers”. Kansas City Star consumer columnist Paul Wenske’s reaction was typical: “Would you agree to let someone arbitrate your dispute with a credit card company if you knew he or she almost always decided in favor of the company?” (“When you sign up for a credit card, you sign up for arbitration”, Oct. 6). It was all a great publicity coup for the litigation lobby, which has been gearing up a campaign to do away with predispute arbitration agreements that divert potentially lucrative disputes away from the lawsuit system.

If, however, you happened to read Bob Ambrogi’s Legal Blog Watch entry on the story, you might have noticed the following reader comment:

Bob, I am an arbitrator for NAF [National Arbitration Forum]. My statistics would show that I rule for the Claimant in an extremely high percentage of cases. The statistic is misleading as 95% plus cases are default cases, where the consumer never bothers to answer.

Posted by: legal eagle | Sep 28, 2007 1:19:06 PM

And there you have the little trick behind Public Citizen’s sensational assertion that only 5 percent of consumers manage to beat the house. The vast majority of cases that go before the arbitrators are in fact uncontested collections, which present no active dispute to resolve one way or the other. Where there is an active dispute, it is plain that consumers’ win rate is very much higher than 5 percent. Why did so many journalists in recent weeks convey the mistaken impression that there’s almost no hope of success for the consumer who contests the lender’s story at arbitration? Because those journalists were falling into a hole skillfully dug for them by Public Citizen.

Any system of resolving routine consumer collections, including traditional courtroom litigation, is likely to generate a high rate of default judgments or their procedural equivalent. The National Arbitration Forum at its website refers to one pertinent study which it summarizes as follows:

Default Judgments Against Consumers: Has the System Failed? (Sterling & Schrag, 1990; 67 Denv. U. L. Rev. 357, 360-61)

A Georgetown University law professor analyzed a sample of claims filed in 1988 against consumers in the Small Claims and Conciliation Branch of the Superior Court of the District of Columbia. The small claims procedure did not require the consumer to submit a written answer. Instead, the consumer only had to show up in court at the specified time. Nevertheless, according to the study, 74% of the cases resulted in a default judgment. In 22% of the cases, the consumer acceded to full liability. In the remaining 4%, the plaintiff voluntarily dismissed the case. None of the cases resulted in a trial.

Making full allowance for the somewhat different mix of cases in the two instances, one still is left here with an even lower “consumer win rate” than in the California data. And a recent news story from Texas about debt collection by lawsuit includes an allegation that more than 80 percent of consumers fail to contest the matter, resulting in default judgments; if creditors are winning even half of the contested cases, the resulting “consumer win rate” is below 10 percent. (Teresa McUsic, “Unpaid credit-card bills giving rise to lawsuits”, Fort Worth Star-Telegram, Aug. 31).

Of course, some of us would suspect that Public Citizen’s really major beef with arbitration clauses is not so much with the way they divert the collections process away from the courts, but with a quite different effect they have on litigation: they impede the filing of class actions by the entrepreneurial plaintiff’s bar (arbitration clauses typically rule out class treatment of complaints, which means law firms who’ve signed up one client can’t proceed to enroll millions of other cardholders as plaintiffs too without their say-so). But of course the casual newspaper reader is likely to be a good bit more sympathetic to individual consumers supposedly facing a deck stacked 95-to-5 against them than with the business reverses of class action law firms who find themselves no longer able to extract the sorts of fee-driven settlements they once did.

O’Quinn told to pay clients $41 million

Because of interest and attorneys’ fees, the figure ordered by an arbitration panel is up from the $35 million reported in our earlier coverage (Apr. 15, Jun. 9, Jul. 19, Jul. 20, Jul. 25). The panel agreed that O’Quinn had overcharged former breast implant clients. (Debra Cassens Weiss, “Lawyer O’Quinn Ordered to Pay $41.4 M”, ABA Journal Online, Sept. 12).

Overlawyered has been covering this particular scandal for more than eight years (Aug. 4, 1999), sometimes out in front of the conventional press.