Ned, knowing that one of my favorite hobbies is despising binding arbitration, sent me a post from Consumerist which links to a law review article written by Judge Richard Neely, who was suckered into being an arbitrator for a private arbitration company.

"Binding arbitration" is a technique used by private companies to circumvent civil courts. Part of English common law -- which is the foundation of the American legal system -- is the idea that government courts can be used to settle civil disputes (disputes between individuals). A judge uses common law, the U.S. Code, and state and local codes to determine who wins a civil dispute. The Seventh Amendment to the U.S. Constitution also permits a jury to adjudicate civil cases "where the value in controversy shall exceed twenty dollars."

Arbitration is not required to adhere to common law, the U.S. code, contract law, or any other law. Where courts must make findings according to the law -- which means there may be a big winner and a big loser -- arbitrators find in equity, meaning they try to come to an arrangement that will please all sides equally. Arbitration is done by private arbitration firms that get paid by the companies for whom they're arbitrating, resulting in -- as Judge Neely observes -- a clear conflict of interest. If you, as an arbitrator, find against the company, then you probably won't be arbitrating for them again (as was his experience). The cards are stacked against the consumer from the beginning, and "unconscionable" provisions that would normally be struck down by a court (such as requiring a respondent who clearly can't pay a debt to pay "arbitration fees," which amount to awarding attorneys' fees) are upheld by arbitrators.

In addition to all this, the U.S. Supreme Court two years ago ruled that arbitration clauses in a contract are "severable" from the contract. Contract law says that if any individual part (or parts) of a contract is unenforcable, then the entire contract is unenforcable. This doesn't hold true, said the Supreme Court, for arbitration clauses, which are always enforcable, no matter what. So even if the contract between yourself and a private company is clearly illegal, if the contract contains an arbitration clause, then the dispute over the contract's illegality goes to the private arbitrator, which will undoubtedly find in favor if its client, the company, and you still have to pay. This hypothetical situation would never occur in a civil court, which would void the contract outright if it contained illegal provisions.

Binding arbitration is another example of the extent to which government services have been privatized -- to the benefit of the company, but to the detriment of the general public for whom these government services have always existed. Supporters of arbitration claim that it's good because it clears courts' dockets of simple civil cases. But Judge Neely observes that arbitration companies charge fees that are much higher than what court costs would have been, ultimately resulting in a greater cost than merely going to a judge. It's also always in the best interest of the public to have an impartial arbitrator -- a judge -- rather than what is obviously a slanted arbitrator, no matter how backed up the dockets are. (The Republican Congress and President Bush also didn't do a very good job of filling vacant judicial appointments, resulting in a backlog of cases and the self-fulfilling lament of "the judicial system is too backed up; we should outsource our justice to private arbitration companies." Note that in my last post, I posited that the Bush administration intentionally staffs government offices with incompetent hacks so that it can later point out how inefficient and incompetent government is, offering a justification for outsourcing those jobs to private companies.)

The tide in Congress appears to be turning, however, and the anti-consumer environment that has existed in this country for the last few years may soon go away. Earlier this year, two senators introduced S. 2003, The Cell Phone Consumer Empowerment Act of 2007, which would change how cell phone operators work. Among the provisions:

• Require providers to conspicuously post information about all taxes, surcharges, contract terms, and rates;
• Require providers to clearly itemize all charges on customers' phone bills;
• Require providers to publish coverage maps down to the county level;
• A commision set up by Congress will regulate the ceiling on early termination fees;
• That same commission will conduct a study on handset locking and portability and make recommendations to Congress concerning handset locking.

No doubt this Congress could also amend the Federal Arbitration Act to make it more consumer-friendly or even limit the ability of arbitration to be used in particular instances. The Ninth Circuit Court of Appeals has already ruled "unconscionable" the cell phone industry practice of mandatory binding arbitration in cell phone contracts. Binding arbitration also precludes the possibility of a class-action suit, and given how awful American cell phone service is, it's in the companies' best interest to stifle class action suits by requiring arbitration. Let's face it: there are enough unhappy cell phone customers out there to constitute a class, and rather than make changes to their service so that it's better, cell phone companies would rather head off expensive upgrades and policy changes (the latter of which might mean that they'll lose lucrative fees and penalties) by prohibiting such suits altogether.

Thanks, Ned!